Annual Report 2018

From April 1, 2017 to March 31, 2018

40th Anniversary
Securities Code 4775

Contents
Corporate Logo

This combination of intelligence, passion and conduct forms
the basis for action at our company with our emphasis on
management consulting.

02 Sogo Medical’s Development
04 Vision 2028 (fiscal year ending March 2028)
06 Sogo Medical Business Overview
08 2018 Highlights
10 2018 Non-Financial Highlights

President’s Message
14 Greeting
15 General Outline of the Fiscal Year Ended
March 31, 201816 Medium-Term Management Plan Priority Initiatives
19 Achieving Our Vision 2028
20 Goals to achieve by the Fiscal Year Ending
March 31, 2020 and Anticipated Challenges in
the Operating Environment

Action Reports
22 Medical Practice Support Business
32 Pharmacy Business
36 Other Topics

38 Sogo Medical from the Perspective of External
Directors

40 Directors, Audit & Supervisory Board Members
and Executive Officers

Management Principles

We shall, in our own lives, highly value
the irreplaceable lives of others.

We believe that our work contributes
to the advancement of society andbenefits many people, andshall therefore conduct our work
responsibly and efficiently.

49 Five-Year Summary of Consolidated Financial
Statements
50 Management’s Discussion and Analysis
56 Risk Information
58 Consolidated Financial Statements

Corporate Credo
1. We shall be a company that values
each life as irreplaceable.
2. We shall be a good partner to our
suppliers and earn their trust.
3. We shall encourage our employees tolive full lives, and grow together
with them as a company.

Corporate Information
64 Corporate Information

4. We shall seek to cultivate thecharacter, skills, and insight of each
employee, to meet our
responsibilities both as a company as
a whole and as individual citizens.
A cautionary note on forward-looking statements• This annual report contains forward-looking statements relating toperformance projections and future predictions that are based on judgments
made in light of information available at the time of writing, and as a result
includes risks and uncertainties. For this reason, there is a possibility that
actual results may differ from such forecasts.
• If it becomes necessary to make revisions to items presented in this annual
report after publication, the revised items will be updated on the company
website in the “Investor Relations” section.

SOGO MEDICAL CO., LTD.

Stock Information

We shall not hesitate to do goodnor prevent harm.

Financial Section

We shall work to build a better society
through good medical practice.

Corporate Information

We shall strive always to beright-thinking, grateful, diligent, modest,honest, refined, straight and fair
independent people.

Mission Statement

Financial Section

Our Pledge

42 Corporate Governance
44 Internal Control System and Compliance System
45 CSR Management & Topics

Corporate GovernanceCorporate GovernanceAction Reports

Medical institutions like hospitals and clinics need good management to provide good medical care.
Providing good medical care from the outset, however, also results in good management.
Therefore, good medical care and good management are both essential to the provision of efficient,high-quality healthcare.
Doctors must have pride and a sense of mission to do everything in their power for the patient they aretreating, and it is our mission to provide the institutional support that enables doctors to focus on theimplementation of this good medical care.

President’s Message

Good Medical Practicethrough Good Management● The upper circle is the head(intelligence)● The lower circle is the heart(passion)● The arc in the center is the
body (conduct)

Company Profile

Company Profile

The logo is designed
around a human being
motif.

Stock Information
65 Stock Information

Annual Report 201801

Company Profile

Sogo Medical’s Development
Net Sales

Ordinary Income

Net Sales(¥ billion)

Ordinary Income(¥ billion)

7

160

2001
April

100

5

4

August 2007
Business alliance
formed with Mitsui &Co., Ltd.

80

June 1978
Sogo Medical Leasing Co.,
Ltd. established with acapitalization of ¥20 million

May 1988
Pharmacy businesslaunched
November 1987
TV rental business forpatients launched

1989
OctoberName changed to
Sogo Medical Co., Ltd.
November Green Members (nowSucceed Members)
system for medical
personnel launched

3

March 2014
Net sales reach ¥100
billionOctober 1994
Design andconstruction of
medical facilities
begun

2016
February

April 2005
Hospital operational
management
contracting begun

DecemberAugust 2000
Listed on Second Section ofTokyo Stock Exchange

1Acquired 75% of sharesof GM Co., Ltd., acompany that performs
interior construction at
medical facilities
Acquired shares of
Miyonodai Pharmacy
Group

0

-1

0
1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Major Events

November 2004
200th Sogo
Pharmacy
openedJune 2010
300th Sogo
Pharmacy
openedDecember 2012
400th Sogo
Pharmacy
openedApril 2014
500th Sogo
Pharmacy
openedDecember 2016
600th Sogo
Pharmacy
opened1988-1996

1997-2006

2007-2017

•1978

•1988

•2000

•2007

AugustBusiness alliance formed with
Mitsui & Co., Ltd.

•2011

NovemberLong-term care service
business launched

•2014

March
Net sales reach ¥100 billion

•2015

March
Acquired shares of Hokendohjinsha Inc.,a healthcare information services company•2016

February
Acquired shares of GM Co., Ltd., a company
that performs interior construction at medical facilities

•1987

June
Sogo Medical Leasing Co., Ltd.
established with a capitalizationof ¥20 million•1989

NovemberTV rental business forpatients launched

Area around the Fukuoka Tenjin Center Bldg.
at the time of the company’s establishment

•1994

May
Pharmacy businesslaunched
OctoberName changed to Sogo
Medical Co., Ltd.
NovemberGreen Members(now Succeed Members) system
for medical personnel launched
October
Design and construction of medical
facilities begun•2001
First Sogo Pharmacy,
in Sakuradai•2005

AugustListed on Second Sectionof Tokyo Stock Exchange
April
All shares of the TV rental
company acquired
At our listing on the Second Section of
Septemberthe Tokyo Stock Exchange
Listed on First Section ofTokyo Stock Exchange
October
DtoD system launched
April
Hospital operational management contracting begun

Villanova Otani, a fee-based homewith long-term care for the elderly

Stock Information

1978-1987

Corporate Information

January 2002
100th Sogo
Pharmacy
openedFinancial Section20

2

Corporate Governance60

40

November 2011
Long-term care service
business launched

Action Reports

All shares of the TV
rental company
acquired
September Listed on First
Section of Tokyo
Stock Exchange
October
DtoD system
launched120

6

President’s Message

March 2015
Acquired 61.6% of shares of
Hokendohjinsha Inc., a healthcare
information services company

140

DecemberAcquired shares of Miyonodai Pharmacy Group

02

SOGO MEDICAL CO., LTD.

Annual Report 201803

Company Profile

Vision 2028 (fiscal year ending March 2028)

President’s Message

We are working to build a better society
through good medical practice.

Achieving a Japanese
Healthcare Business Model
April 2017 to March 2020

Action 2020

Fiscal year ending
March 31, 2028

Achieving a
Japanese Healthcare
BusinessModel

to Support an Integrated Community Care System

Hospital
Management
Support

Ideal
Healthcare
MallFinancial Section

Existing
healthcare mall

Advanced acute care hospital

Corporate GovernanceRealizing a
Japanese Healthcare
Business Model

Vision for FY2027

Action Reports

Medium-Term
Management Plan

Pharmacy

Acute care hospital
Treatment
Nursing
care

Through collaboration with other companies, we will promote the building of foundations for regional healthcare
networks of DtoD systems and high-value pharmacies.

1 Develop Healthcare Malls

2 Support Hospital Management

Social infrastructure acting as core facilities for medical
treatment, nursing care, and support for daily life

Support functional specialization and coordination to build an
integrated community care system

Toward 200 Locations

4 To Achieve Our Vision 2028

Support an integrated community care system with pharmacies
that serve as general healthcare stations

Enhancement/strengthening of existing businesses andscope expansion of health-related businesses

Organic Growth* of 2.3 Million Prescriptions (20%)

Exploiting New Areas, Leveraging Bidirectional
Domestic/International ExpertiseSOGO MEDICAL CO., LTD.

Rehabilitation hospital

Chronic care hospital

Healthcare&
prevention

Stock Information

04

Daily life
support

Toward 37 Hospital Management Support Cases

3 Create High-Value Pharmacies*Organic Growth: independent growth exclusive of M&A

Residential life

Medical practice
succession, healthcare
coordination,practice transfer support
systemCorporate Information

Realizing a Japanese Healthcare Business Model

Hospital bed
reorganization

Annual Report 201805

Company Profile

Sogo Medical Business Overview

Healthcare & Prevention

Hospital Management
Support

Healthcare Malls

Management
Consulting

Healthcare coordination
supportIntroduction of
successors

Human Resources

Facilities

Sogo Medipro
Co., Ltd.

Sogo Real EstateCo., Ltd.

Funding

Practice change &start-up support

Information

Introduction of
successorhli s dia b orE st co

n
t io
tra
gi s

Re

• Introduction of superior physicians• Support for overall healthcare coordination

Pharmacies

OthersDispensing Pharmacies

Nursing Care

We actively promote the establishmentof “general healthcare stations” withroots in local communities and strong
capabilities as “primary care pharmacies.” We provide enhanced treatment
and care by bolstering the role ofpharmacists and pharmacies, and are
expanding our efforts relating toin-home care as well as healthcare andprevention.

We are expanding our nursing carebusiness through Sogo Care Network
Co., Ltd., which manages fee-based
residential homes for the elderly, andSun Villa Co., Ltd., which manages
fee-based homes with long-term carefor the elderly.

Stock Information

DtoD System

Our DtoD services include management
consulting in such areas as basic
concept formulation, hospital bed
reorganization simulations, management enhancement support for medical
facilities, and the development andmanagement of healthcare malls tomeet local treatment and care needs.
We also rent televisions to hospitalpatients, lease medical devices, andplan, design, and construct medical andlong-term care facilities.

or t

Corporate Information

Hokendohjinsha Inc.

Bunkyo Co., Ltd.

pp

Financial Section

Patients

In-Hospital Shops andRestaurants

Management consulting;leasing and installment sales;
rentals; planning, design, andconstruction of medical facilities;
medical and health information
services

Su

Corporate Governance

Sun Villa Co., Ltd.

Hospitals

Action Reports

S.M.E Co., Ltd.

Sogo Care Network Co., Ltd.

Medical Practice
Support

RegistrationnDoctors &MedicalInstitutions

e

rt

SOGO
MEDICALt io

Long-Term Care

Wholesale ofPharmaceuticals

Through our nationwide network of 28
offices, our DtoD system stimulates local
medical care by generating ideal matches
between outstanding personnel andmedical facilities; providing comprehensive support for employed physicians andthose working in private practices; andgenerating solutions for the challenges
facing hospitals.

ppo

Independent
PhysicianstraPharmacy group companies

Sogo Medical’s DtoD System

Su

ion

gis

GM Co., Ltd.

Leasinge, S u c c e s sRe

Sogo Pharmacies

nde ncSupport

Somtech Co., Ltd.

epe

ng

Pharmacies

Medical practice
succession, healthcare
coordination,practice transfer support
systemha

Design & Construction(Doctor to Doctor)

Employed
Physicians

er cRental「DtoD」

In d

Car e

From a consulting base, Sogo Medical offers total management support that helps partner hospitals
and clinics realize more efficient, high-quality healthcare. We are engaged in a variety of activities
that support good medical practice. Our DtoD system helps stimulate local medical care throughphysician referrals, support for medical practice handovers, and the coordination of medical care.
We develop and manage healthcare malls to meet local treatment needs, establish primary carepharmacies with roots in local communities, and lease medical equipment to improve the quality ofpatient amenities. In these and other ways, we are expanding our business to offer multi-faceted
support for good medical practice.

Career change, support to launch
independent practicemna enttio o fn s h ealtruc t h car etures

Contributing to the
Revitalization of Local
Medical Care

President’s Message

Sogo Medical provides total consulting-based
management support

As of May 1, 201806

SOGO MEDICAL CO., LTD.

Annual Report 201807

Years Ended March 31

135.4 billion

120.7 122.2

0.7%

billion103.3 107.9

MedicalPractice
Support80.2 86.6

18.1%

¥

Pharmacies

81.2%

2012 2013 2014 2015 2016 2017 2018

7.1

Operating Income to
Net Sales Ratio

billion

5.3 %

6.0
5.0

4.8

5.0

4.3
6.0
5.0

4.9

2012

2013

2014

2015

2016

5.3%

5.1

5.0

4.6

2017

2018

Operating income amounted to ¥7,189 million, a 15.1% increase over the previous term. Operating income by segment
included Medical Practice Support at ¥884 million, down 10.3%, and Pharmacies at ¥7,139 million, up 17.6%.

Total Assets

Total Assets

Total assets
Capital adequacy ratio

89.7

billion 40.4 %

57.1

53.1

36.7

2013

40.4%

39.5

37.8

2012

74.6

69.8

66.9

89.7 billion

37.7

37.6

35.7

2014

2015

2016

2017

2018

¥

36.5

ROE

billion 12.3 %

13.6

29.6

26.5

23.9

21.6

19.5

¥

36.5 billion

32.8

12.6
11.0

12.3

12.2

12.3%

8.3

2012

2013

2014

2015

2016

2017

2018

Total assets amounted to ¥36,526 million, an increase of ¥3,645 million over the previous term. A dividend payout of ¥785
million was offset by net income attributable to owners of the parent totaling ¥4,243 million.

Net Income Attributable to Owners of the Parent

Cash Dividends per Share¥

4,243 million

Cash dividends per share
Dividend payout ratio

4,243

million

2012

2013

2,856

2,774
2,318

2014

2015

2016

2017

2018

At the close of the term, net income attributable to owners of the parent was ¥4,243 million, an increase of 12.3%.

SOGO MEDICAL CO., LTD.

60 21.2

Dividend Payout Ratio

¥

40

35

40

45

40

29.1
22.8

%

20.2

2012

2013

20.2

2014

20.8

2015

2016

19.8

2017

21.2%

2018

The annual dividend payment for the term totaled ¥60.0 per share, including a year-end dividend of ¥32.5 (including acommemorative dividend of ¥5.0 yen) and an interim dividend of ¥27.5. This equaled a payout ratio (consolidated) of
21.2%.

Annual Report 2018

Stock Information

¥

2,532

60

50

3,779

2,504

¥

Corporate Information

Total assets expanded by ¥2,988 million during the term, to ¥89,748 million. Total current assets rose ¥3,300 million, to¥48,299 million, largely due to a ¥3,707 million increase in cash and deposits. Total noncurrent assets fell ¥311 million, to¥41,448 million, principally due to a ¥584 million reduction in goodwill.

Financial Section¥

Capital Adequacy
Ratio

¥

Total assets
ROE

Corporate GovernanceNet sales amounted to ¥135,431 million, an increase of 10.8% over the previous term. By segment, Medical Practice
Support sales totaled ¥24,548 million, down 3.0%; Pharmacies totaled ¥109,918 million, up 14.5%; and Others totaled¥964 million, up 2.1%.

86.7

08

7.1 billion

6.2

Action Reports

135.4

¥

¥

¥

OthersBreakdownof total sales

Operating income
Operating income to net sales ratio

Operating Income

President’s Message

Net Sales

Company Profile

2018 Highlights09

(physicians seeking to transfer or open a practice)

56,50562,42969,1591,680

48,430

2014

2015

2016

2017

2018

We provide support for medical practice management from avariety of angles, including human resources, facilities, funding,and information.

A significant number of physicians seeking to transfer or open a practice are registered with Sogo
Medical’s DtoD service. Our nationwide network of 28 offices works to match outstanding personnel withmedical facilities.

2,364(as of March 1, 2018)(certified full- and part-time pharmacists)

1,913

1,332

2014

2015

2016

2017

2018

In addition to our healthcare support pharmacy activities and implementation of wide-ranging
training systems, we support pharmacist skills enhancement for advanced pharmaceutics
management.

HealthCare Note
(Electronic Medicine Scheduler)registered users

Staffed with “primary care pharmacists” andequipped with “primary care pharmacy” capabilities, healthcare support pharmacies provide
active support to local residents for independent
health management. Sogo Medical Group
pharmacies account for approximately 10% of
the total of 879 such pharmacies nationwide.

10

SOGO MEDICAL CO., LTD.

This application brings convenience by shortening patient
waiting times, for example, and by allowing pharmacists
to review patients’ medication records ahead of time,
promoting more reliable drug administration.

687

687

576
538
493

locations

2014

2015

2016

2017

2018

We have expanded our nationwide network of pharmacies to serve as “general
healthcare stations” with local roots. Our goal is to further contribute to local treatment
and care.

Trace reports providing
feedback to physicians

117,000 reports
Information from patients, including medication information, was shared with
doctors to improve patient care quality in coordination with medical facilities.

Annual Report 2018

Stock Information

89 locations 82,523674

Corporate Information

Healthcare Support
Pharmacies

Pharmacies

Financial Section

2,505

1,768

2,505

Corporate GovernancePharmacists

Action Reports

74,898Succeed Members

74,898

Medical practice
succession, healthcare
coordination,practice transfer support
systemPresident’s Message

DtoD Participating Physicians

As of March 31, 2018

Company Profile

2018 Non-Financial Highlights

11Company Profile
President’s Message

President’s Message

Action Reports

Our goal is to perfect a Japanese healthcare
business model based on healthcare malldevelopment, hospital management support,
and creation of high-value pharmacies.

Corporate Governance

14 Greeting
15 General Outline of the Fiscal Year Ended March 31, 2018
Medium-Term Management Plan Priority Initiative 1

16 Progress toward Healthcare Mall Development

Financial Section

Medium-Term Management Plan Priority Initiative 2

17 Progress toward Hospital Management Support
Medium-Term Management Plan Priority Initiative 3

18 Progress toward Creation of High-Value Pharmacies

Corporate Information

19 Achieving Our Vision 2028
Goals to achieve by the Fiscal Year Ending March 31, 2020

20 and Anticipated Challenges in the Operating Environment

Stock Information

Kenji Sakamoto
Representative Director,
President andChief Executive Officer

12

SOGO MEDICAL CO., LTD.

Annual Report 201813

Company Profile

General Outline of the Fiscal Year Ended March 31, 2018

President’s Message

Please describe progress during the term toward the goalsof the Action 2020 Medium-Term Management Plan.

In the first year of its efforts to bring about the realization of aJapanese healthcare business model, Sogo Medical worked actively toachieve progress in the three main areas.

Going forward, Sogo Medical Group’s employees will apply their
combined energies to address a wide range of healthcare-relatedsocial challenges, promote the foundation of regional healthcare
networks, and become an enterprise indispensable to society.
I look forward to your continued guidance and support.

14

SOGO MEDICAL CO., LTD.

We are taking our activities to the next level
to ensure that the coming fiscal year is evenmore productive.
The medical industry is currently promoting
specialization and coordination of medical
treatment through hospital bed reorganization.
Akasaka Toranomon Clinic (Tokyo), which
opened in October 2017, is taking the lead with
Toranomon Hospital, an advanced acute care

Annual Report 2018

Stock Information

Sogo Medical celebrated its 40th anniversary on June 12, 2018.
The achievement of this milestone was due solely to the ongoingsupport and encouragement of our stakeholders, and for this I
would like to express my sincere gratitude.

Corporate Information

At the same time, we committed anew to make the term a year of
fulfilment of our Mission Statement: to build a better society throughgood medical practice.

Financial Section

In April 2017, we announced our Action 2020 Medium-Term
Management Plan. Subsequent communication with shareholders,investors, and customers clearly indicated strong expectations for
progress toward the realization of a Japanese healthcare businessmodel.

Corporate GovernanceGreeting

It gives me great pleasure to present this annual report for FY2017.

During the term, we promoted activities inthree main areas. First was development ofhealthcare malls, which will serve as social
infrastructure acting as core facilities for medical
treatment, nursing care, and support for daily life.
Second was management support for hospitals,
to support functional specialization andcoordination to build an integrated community
care system. Third was the creation of high-value
pharmacies capable of supporting integrated
community care systems as “general healthcare
stations.” As a result, total sales rose 10.8% to¥135,400 million yen. By segment, medical
practice support sales amounted to ¥24,548
million, down 3.0%; Pharmacies totaled¥109,918 million, up 14.5%; and Others was¥964 million, up 2.1%. These favorable results
reflect Sogo Medical’s successful reading of, andadjustments to, changes in its operating
environment, and is an indication of society’s
demand for our services.

facility, to achieve specialization and coordinationof medical treatment. This result of our support
service is a first for Sogo Medical and can be
regarded as a model case for healthcare malldevelopment. Going forward, we plan to help
physicians realize their dreams and solve thechallenges facing hospitals while realizing
medical environments offering peace of mind to
local residents. With regard to hospitalmanagement support, we gained experience
providing total hospital management support toLake Town Hospital of Orthopaedics (Saitama),
and I feel we were successful in pursuing moreadvanced management activities. We continued
to work toward the achievement of physicians’
treatment ideals while taking into consideration
the hospital management environment, andthrough our work there we were able to once
again reconfirm the importance of accomplishingthose ideals. With respect to the creation ofhigh-value pharmacies, the number of healthcare
support pharmacies increased to 89, and I
believe we are approaching the realization of our“general healthcare station” concept. The
pharmacy business is facing tough challenges
with the revisions to pharmaceutical anddispensing fees. However, we will work actively
to provide patients with high-quality dispensing
services more closely attuned to their needs, andthrough diversified health support services,
toward our aim of making our pharmacies evenmore essential to local communities.

Action Reports

Our 10.8% growth over the previous term isa sign of society’s need for our services.

15Medium-Term Management Plan Priority Initiative 2

Progress toward Healthcare Mall Development

Progress toward Hospital Management Support

Please summarize Sogo Medical’s hospital management
support activities and future challenges.

We made progress in mall development and internal organization,
and are working toward the goals of the medium-term
management plan.

75

18/3

130

19/3

20/3

Medium-Term Management Plan Term

21/3

New cases

Total cases atthe close of
the term

5

18/3

19/3

20/3

3

9

20

8

17

37

Medium-Term Management Plan Term

Stock Information

2017/3100

2017/3

Corporate Information

200

Management Support Case Targets

Financial Section

300

Number of healthcare malls

Sogo Medical provides hospital management
consulting through dedicated on-site personnel
as well as consultant visits. During the term, we
initiated work on four new support cases,
resulting in a total of nine cases in progress. In sodoing, we achieved the first-year goal of themedium-term management plan.
Support for Lake Town Hospital of
Orthopaedics included three on-site consultants,
and was a distinctive example of our total
hospital management support. We will internallyshare the expertise that was gained here, toenhance the quality of our management support.
We believe the demand for consulting services
relating to hospital bed reorganization willcontinue into the future. Hospitals facing difficult
management challenges will be likely to require
management consultation about restructuring
and other ongoing support. By leveraging our
DtoD network, which encompasses over 70,000
registered physicians as well as medical facilities
nationwide, we will work to realize practiceconditions that are ideal for physicians to offer
treatment and support the creation ofenvironments that enable medical facilities toleverage their capabilities.
Overall, we see ample demand for our services,
but reaching our target of 37 management
support cases by the end of FY2019 will require
us to secure more outstanding personnel. We are
currently conducting internal management
consulting seminars to enhance the capabilities ofour personnel. We are also working to make Sogo
Medical a more attractive place to bring in outside
talent by enhancing our organizational structure.

Corporate Governance

SOGO MEDICAL CO., LTD.

Healthcare Mall Number Target

Having reached our target for the term, we will not be satisfied,
but will continue working to secure human resources.

Action Reports

16

success in supporting physicians who areseeking to open new practices. In the process,our professionals gain further experience, andwe are accumulating additional proprietary
expertise. Going forward, each of our
professionals in this area will work to raise thelevel of their Practice Process Innovation (PPI)Internal Certification, and we will seek to hire
mid-career personnel who can make an
immediate impact, to further enhance our
support structure. In 2016 we established a
Healthcare Mall Development Division in the
Higashinihon Office, and in 2017, we launchedthe Healthcare Mall Development Group in the
Nishinihon Office. Our goal is to reach 200
healthcare malls by the end of FY2019, and to
this end we are further accelerating the pace ofdevelopment.

President’s Message

Please profile Sogo Medical’s activities and achievementsin the area of healthcare mall development.

During the term, we continued efforts of theprevious fiscal year to develop healthcare malls.
We also opened malls across the nation,
including Akasaka Toranomon Clinic and Medical
Mall Toyosu, both in Tokyo, and Matsuo Medical
Square Ⅱ in Kyoto. By the end of the term, thenumber of such malls totaled 94 nationwide.
Akasaka Toranomon Clinic is particularly
significant in that it was Sogo Medical’s first
specialized treatment clinic-type healthcare mallin coordination with Toranomon Hospital, an
advanced acute care provider. We will use theexpertise acquired from this experience to further
support the specialization and coordination of
medical facilities and contribute to more efficient
medical treatment. We are also working to offer
services relating to healthcare and prevention as
well as nursing care. These activities include
organizing health-related events at healthcaremalls, and health screenings. Our goal is tosupport local health and daily life throughcommunity healthcare malls with advanced
capabilities.
Our healthcare malls are centers for local
communication across generations. They offer
treatment, nursing care, healthcare and disease
prevention, daily life support, and otherfunctions, and demonstrate their capabilities inmetropolitan and regional areas. Going forward,
we will focus renewed effort on the Tokyo
metropolitan area, the Tokai region, and the Kinki
region to raise the number of mall development
projects.
Every year, Sogo Medical achieves new

Company Profile

Medium-Term Management Plan Priority Initiative 1

Annual Report 201817

Progress toward Creation of High-Value Pharmacies

Achieving Our Vision 2028

Please characterize activities during the term toward fulfillment of the Vision 2028.

During the term, we strived to enhance and bolster
the functioning of our core businesses, and sought to expand thescope of our peripheral businesses.

We are helping pharmacists to use their skills proactively throughefforts including health support pharmacy registration.

Other new pharmacies

812

Number of pharmacies, beginning of term

10
70

732
692

2017/3

18/3

30
99

19/3

20/3

Synergy with Bunkyo

Medium-Term Management Plan Term

Enhanced services for hospitals and an expanded network of hospitals nationwide will make it possible to offer new value to medical facilities.

Corporate Information

Bunkyo Co., Ltd.

Sogo Medical Co., Ltd.

Business Overview

Business Overview

In-Hospital Shops
Practice Launch Support

Personnel Placement

Management Support

Rentals and Leasing+

Restaurants

Vending Machines

Cafés

Insurance Business

Principal Clients

Small- and Medium-Sized
Hospitals Nationwide

Large Hospitals
Nationwide

Stock Information

Principal Clients

Financial Section

674

10

Corporate Governance

SOGO MEDICAL CO., LTD.

Pharmacy Number Targets

Moreover, in the areas of healthcare andprevention, as well as medical ICT, the important
themes in activities to realize the goals of our
Vision 2028, we initiated research from a wide
range of international and domestic perspectives. For example, through research in the US,we were able to gather useful information regarding differences between the US and Japan interms of pharmaceutical distribution and pharmacist practices, and how such differences
might point the way to improvements in local
medical practice in Japan.
Going forward, we will continue to promotethese activities to leverage our expertise, andconsider measures to deploy distinctive
businesses.

In April 2018, Sogo Medical acquired 100% of
the shares of Bunkyo Co., Ltd., whose operations include in-hospital shops, convenience
stores, restaurants, and television rentals inapproximately 100 hospitals throughout Japan.
Bunkyo is a leader in offering a wide range of
integrated capabilities for enhancing hospitalpatient environments. More than half of its operating installations are located in large hospitals(400 or more beds), and its capabilities will
generate synergy for achieving the goals of themedium-term management plan, which includes
a focus on hospital management support. Acquisition of Bunkyo will also strengthen the Sogo
Medical Group’s overall medical practice support
business.

Action Reports

18

The goal of these multifaceted activities is forpatients to be pleased that they were able toaccess a Sogo Pharmacy. We will continue toenhance our capabilities toward realization of
our Vision 2028.

New pharmacies due to healthcare malldevelopment

President’s Message

Tell us about progress toward creating high-value pharmacies,
and the outlook for the next fiscal year.

The number of pharmacies increased by 18
locations during the term, to a total of 687
nationwide. Total sales were ¥109,900 million, an
increase of 14.5% over the previous fiscal year.
We reorganized our internal structure, replacing
branch office-based management of Sogo
Medical Group pharmacies with unified
management through a new Pharmacy
Management Division. This move is facilitating
expertise and information sharing as well as
more rapid lateral strategy deployment.
Furthermore, we have divided the country into
approximately 30 blocks for personnel
deployment and pharmaceutical distribution topromote cost optimization and maximize thevalue we offer.
On the frontline, we are promoting activities torealize our “Vision for Patient-Centered
Pharmacies.” With respect to primary carecapabilities, we promoted the creation of highly
differentiated pharmacies with roots in local
communities, with the aim of expanding the roleof our pharmacists and pharmacies in society. At
the same time, we actively promoted healthcare
support pharmacy registration, raising the total ofregistered Sogo Medical pharmacy locations to
89. There are 879 such pharmacies in Japan,
and our locations account for approximately
10% of the total. At these pharmacies, we madeongoing efforts to demonstrate the professional
capabilities of our pharmacists and further
enhance the quality of our pharmacy services.
These efforts include health consultation events
held with support from nationally certified senior
nutritionists, and promoting
certification of
supporters for the cognitively impaired.

Company Profile

Medium-Term Management Plan Priority Initiative 3

Annual Report 201819

Company Profile

Goals to Achieve by the Fiscal Year Ending March 31, 2020 and
Anticipated Challenges in the Operating Environment
Objectives for the Fiscal Year Ending March 31, 2020

Develop Healthcare Malls

01 Social infrastructure acting as core facilities for medical treatment, nursing care, and support for daily life
President’s Message

Achieve 200 healthcare mall locations

Support Hospital Management

02 Support functional specialization and coordination to build an integrated community care system
Achieve 37 hospital management support cases

Create High-Value Pharmacies

Organic growth*1 of 2.3 million prescriptions (a 20% increase)

Action Reports

Action Reports

03 Support an integrated community care system with pharmacies that serve as “general healthcare stations”
To Achieve Our Vision 2028

04 Enhancement/strengthening of existing businesses and scope expansion of peripheral businesses
Exploiting new areas, leveraging bidirectional domestic/international expertise

Growth Investment

Financial Strategy

Total Sales

Facilities Investment

Net Debt-to-Equity Ratio*3

Dividend Payout Ratio¥160 billion (organic)¥20 billion allocatedover three years
Aggressive use of M&A
and coordinationin separate categories

Approx. 0.5 (times)

Maintained atminimum 20%

EBITDA Margin*2

Over 9%Where funding is required tosupport strategic growth, wewill use mainlyinterest-bearing debt and limit
the ratio to approximately 1.0

Maintaining stable,
continuous dividend
payouts

22 Medical Practice Support Business
32 Pharmacy Business
36 Other Topics

Financial Section

Cash Flow

Total Shareholder
Returns

Corporate GovernanceManagement Targets (Fiscal Year Ending March 31, 2020)*1 Organic Growth: independent growth exclusive of M&A*2 EBITDA: Earnings before tax + depreciation expense + goodwill amortization
EBITDA Margin: EBITDA ÷ Total Sales*3 Net debt-to-equity ratio: (Interest-bearing debt – cash and deposits)/shareholders’ equity
Interest-bearing debt includes lease obligations and installment purchase accounts payable that are included in the consolidated balance sheet

Anticipated Changes in Operating Environment
Corporate Information

During the term of the medium-term management plan, we anticipate a variety of changes, including simultaneous revisions totreatment and care fees, new government plans for medical treatment and the care insurance business, and an increase in the
consumption tax in October 2019. In response, we will reinforce our business foundation toward realization of our Vision 2028.
Medium-Term Management Plan Term
FY2016FY2017●●

Revised Drug Income●●

SOGO MEDICAL CO., LTD.

FY2019FY2020●●Stock Information

Revised Treatment Income

Revised Long-TermCare Fee

20

FY2018●●Treatment Plan

6th Treatment Plan

Care Insurance
Business Plan

Care Insurance Business Plan

7th Treatment Plan (start of Community Health Care Visions)
Care Insurance Business Plan

Annual Report 2018

21

94

Healthcare malls launchedduring the term

41

2014/3

53

15/3

65

16/3

75

17/3

18/3

Action Report
Healthcare Malls Nationwide

Tsukiguma Medical Mall

HAT Kobe Medical Mall

Medical Mall Fujimi(opened May 2012 in Fukuoka City, Fukuoka)(opened February 2010 in Kobe City, Hyogo)(opened April 2015 in Fujimi City, Saitama)

Action Reports

Medical Practice
Support Business
Summary and Data

Shingu Chuo-Ekimae Mall

Medical Mall Toyosu(opened October 2016 in Kasuya, Fukuoka)(opened July 2017 in Koto-ku, Tokyo)

Corporate Governance

We are supporting the maintenanceand enhancement of local medicalcare, and promoting the creation of
medical environments to allow
residents to live with peace of mind.

Miyahara Clinic Mall
(opened September 2016 in Osaka City, Osaka)

The goal of our medical practice support business is to create ahealthy management base that will allow physicians toconcentrate on their practices. To achieve this, the support we
provide must be appropriate to the current state of theinstitution as well as the surrounding community
environment. We strive to enrich and enhance the content of
the support we provide, to enable medical institutions to makegreater contributions to local communities.

(¥ million)

25,81125,30523,302

15/3

16/3

17/3

18/3

Hospital Management
SupportWe provided nine cases of management
support to enable physicians to focus ontreatment.

Promoting Support
for Medical PracticeSuccession
Preserving local medical practices that
support daily life. We supported 35 medical
practice successions during the term.

22

SOGO MEDICAL CO., LTD.

Hospitals are increasingly turning to Sogo Medical with consulting
requests as they work to realize the Ministry of Health, Labour andWelfare’s Integrated Community Care System. During the term,
we provided nine hospitals with comprehensive management
support, striving not only to improve their management situation,
but to consider possible changes in their operating environment
and meet the associated challenges proactively.

One of the major challenges facing local medical care is the aging
of practice owners and a lack of available successors. Sogo
Medical is promoting support for third-party medical practice
succession, using our nationwide DtoD network to introduce
physicians wishing to start their own practices to practice owners
with no successors. During the term, we contributed to thestability and development of local medical care by providing
support for 35 cases of medical practice succession.

Management
Support Cases
5

5

16/3

17/3

9

18/3

Medical Practice Succession Cases
80

74
50

2014/3

15/3

46

16/3

17/3

35

Stock Information

2014/324,548(opened October 2017 in Minato-ku, Tokyo)

Corporate Information

29,779Akasaka Toranomon Clinic
Financial Section

Medical Practice Support Business Total Sales

President’s Message

We have developed 94 healthcare malls
nationwide as centers for treatment andnursing care.

Healthcare malls not only provide patients with greater
convenience, they promote more efficient treatment by fostering
coordination among physicians, and are contributing to theprovision of in-home care through coordination among medical
personnel and other professions. We are maintaining our focus
on healthcare mall development, and the number of healthcaremalls totaled 94 at the end of the term. Going forward, we will
actively promote the creation of healthcare malls as centers fortreatment and nursing care.

Company Profile

Development andExpansion of
Healthcare Malls

18/3

Annual Report 201823

Action Report

Medical Practice Support BusinessCompany Profile
President’s Message
Action Reports

Masahiro Monji
Motoharu Takagi

Action Report

1

Akasaka Toranomon Clinic

24

SOGO MEDICAL CO., LTD.

The Increasing Importance of
Coordination between Advanced
Acute Care Hospitals and Clinics
Capable of Treating Chronicand Mild-Case Patients“Toranomon Hospital provides
advanced acute care, but alsosees many chronic- and mild-casepatients. This results in thesepatients often facing long waits
before seeing a physician, and thenumber of patients is a challenge
for physicians and medical staff,
one that has been a source ofconcern for many years. To date
we have tried a variety of ways toaddress this problem, includingreferring mild-case patients toother hospitals, but our outpatient
waiting room remains crowdedwith people, and we decided tobuild a new clinic,” said Kazuo
Takeuchi, then vice-director of
Toranomon Hospital, who led the
project and identified physicians
who were interested in working at
the new facility. As a result, 15
physicians in 11 medical special-

ties were assembled, it also
provided some personnel who
were on the eve of retirement witha new place to work. But as Dr.
Takeuchi noted, the next challenge
was determining how best to
launch the clinic. “Management is
an area where we lack experience.
Preparing for the launch in parallelwith our regular duties would nothave been realistic. That’s why weturned to Sogo Medical, which has
extensive expertise in supporting
clinic launches.”
In September 2014, we beganproviding hospital launch support
with a project team of fiveprofessionals.

Realizing Clinics Ideal for
Physicians and Patients“We first met with physicians
individually to explore what they felt
was most important in providing a
medical service,” said Masahiro
Monji of Sogo Medical’s Healthcare
Mall Development Division of theHigashinihon Office. Monji had two
principal objectives. The first was toachieve a service level equal to thatof Toranomon Hospital while prioritizing physician requests. The
second was to facilitate provision ofefficient treatment with shorter
patient waiting times. With limited
available floor space, he helped
select the required medical equipment, devised a layout with efficient
flow lines, and worked to implementa system for sharing clinical datawith Toranomon Hospital. He also
coordinated the smooth executionof all legal procedures required toestablish a new, large-scale medical
corporation,
where
accurate
management decisions must be
made. His efforts helped realize theaspirations of Dr. Takeuchi and theother physicians involved.
“We stayed in close contact withthe physicians up to the launch, with
face-to-face as well as telephoneand email contact. We also worked
to meet physicians’ goals ofadvanced treatment and comprehensive patient service throughefforts including careful positioningof equipment in the endoscopic
examination room so as to also
allow its use for outpatient surgery
and in-patient examination, andprovided separate reception andpayment areas to ensure seating for
all waiting patients. Everyone on theteam was committed to realizing thegoals of this deeply significant
project.”
Advance appointment reservations to transition patients from
Toranomon Hospital to the newclinic began two months before thelaunch. This was followed by launch
rehearsals, mock examinations andother preparations. In October
2017, Akasaka Toranomon Clinic
opened its doors in an innovative
coordination with an advanced

acute care hospital.
Dr. Takeuchi noted, “Approximately 80% of chronic- andmild-case patients at Toranomon
Hospital willingly transferred to theclinic. Everyone is pleased with thehigh level of treatment and shortwaiting times. The warm reception
and appropriate treatment toward
patients that I aimed for has beenachieved, and for this and the support I received from Sogo Medical,
I am extremely grateful.”

Annual Report 2018

Stock Information

In October 2017, Akasaka Toranomon Clinic
opened its doors to provide a wide range of
medical diagnosis and treatment services onan equal basis and in coordination with theoutpatient capabilities of Toranomon
Hospital, an advanced acute care hospital.
The clinic, which includes 11 clinicaldepartments, is drawing attention for its
innovative realization of functional
specialization in coordination with a major
medical facility.

Chairman,Akasaka Toranomon Clinic

Corporate Information

Development and Management Support
for Specialized Treatment Clinic-Type
Healthcare Malls

Kazuo Takeuchi

Financial Section

Realization of Primary Care
Medicine that Promotes
Specialized, CoordinatedTreatment

Senior Advisor,
Healthcare Mall Development Division,
Higashinihon Office,Sogo Medical Co., Ltd.

Corporate Governance

Senior Adviser,
Medical Profession Management Support Division,
Higashinihon Office,Sogo Medical Co., Ltd.

25

Akasaka Toranomon Clinic and Toranomon Hospital

Chronic- andlight-casepatient referrals

Toranomon Hospital
President’s Message

Advanced acute care hospital(move to adjacent location planned for 2019)

Akasaka
Toranomon
ClinicProviding primarycare to local
residents

Critical casepatient referrals

Imaging equipment
loaning

Toranomon Hospital-AffiliatedHealth Management Center andDiagnostic Imaging Center

Action Reports

Specialist-led physicalexamination
Patient referrals

Coordinated imaging equipment
usage and patient referrals
Corporate Governance(on the fifth floor of the same building
as Akasaka Toranomon Clinic)

Future Prospects for Akasaka
Toranomon Clinic, which is
Drawing Attention with its
Innovative Approach
Clinic interior

Better medical services for evenmore patients: Akasaka Toranomon
Clinic will move forward, providing
advanced treatment that shapes thehighest primary care standard, andbrings patients peace of mind.

Corporate Information“Toranomon
Hospital
willcomplete construction of a newbuilding in 2019, and we expect the
number of outpatients to further
increase,” said Dr. Takeuchi. “Therole played by this clinic will likely
become even more significant.
Furthermore, there are very few
clinics in Japan at this time with adirect coordinating relationship withan advanced acute care hospital,
which makes this clinic an experiment. Our goal is to serve as a

Financial Section

With the clinic launched, Sogo
Medical began providing management consulting aimed at stable
management and operation. Sogo
Medical provided four on-site
consultants who worked to create amanagement structure that would
free the physicians to concentrateon treatment.
“For physicians to maintain a highlevel of motivation, it is importantthat they be able to focus on
medical care. At management meetings, we shared information on the
management situation, proposed
actionstoreduceoperatingexpenses and how to attract agreater number of patients, andprovided implementation support. In
addition, during the period of
acclimatization to the new environment, the consulting team made aconcerted effort to communicate
closely with Dr. Takeuchi and the
medical staff to create a climate ofsmoothly-functioning coordination
between everyone in the clinic,”
noted Motoharu Takagi, of theMedical Profession Management
Support Division of the Higashinihon
Office.
Thanks to this close, continuous
management support, the numberof outpatients seen by the clinic in its
first six months of operation
exceeded 5,000. In addition tomodel case for private hospitals.
While patients from Toranomon
Hospital will continue to be our
focus, in the future we hope toprovide advanced medical services
to other local residents, including
endoscopy-based cancer screening.”
Sogo Medical’s support team also
has great expectations for Akasaka
Toranomon Clinic. “The presence oflarge clinics like this helps provide
residents with peace of mind,” said
Monji. “They are also a good way foryoung physicians to accumulate
experience. We hope to strengthen
our coordination with Toranomon
Hospital, and create a structure that
promotesinteraction
betweenphysicians.”“Patients place great trust in their
physicians,” Takagi added. “Theyarrive at the clinic looking apprehensive, and leave looking relieved. I will
recommend the clinic to my family
and friends, and hope patients fromall over the local area will takeadvantage of its services.”

Company Profile

Post-Launch Management
Support Frees Physicians to Focus
on Treatment

existing chronic- and mild-casepatients who had already transferred
across, an increasing number of
additional patients were referred by
Toranomon Hospital. Management
stabilization and medical service
coordinationareprogressing
steadily.
“It’s reassuring to have advice
available whenever it is needed,” Dr.
Takeuchi said. “Sogo Medical’s
consultants are working closely withus, and in just six months we wereable to establish a well-organized
operating structure.”

Medical Departments and Number of Specialist Physicians, Akasaka Toranomon Clinic● Gastroenterology● Gastroenterology (endoscopy)● Pulmonology● Cardiology● Diabetes

26

SOGO MEDICAL CO., LTD.

4
2
1
1
1
2

● Dermatology● Otorhinolaryngology● Urology● Obstetrics and gynecology● Diencephalo-pituitary surgery

2
2
1
1
1

Stock Information● General internal medicine

Annual Report 201827

Action Report

Medical Practice Support BusinessCompany Profile
President’s Message
Action Reports

Ryo Hoshino

Action Report

Senior Consultant,
Medical Profession Management Support Division,
Higashinihon Office,Sogo Medical Co., Ltd.

Offering Highly Satisfying
Medical Service with Specialist
Management2

Lake Town Hospital of
Orthopaedics

28

SOGO MEDICAL CO., LTD.

Dr. Yasumura asks patients toprovide details about family
composition and personal lifestyle,to propose the most appropriate
treatment proposals for eachindividual. Sogo Medical beganproviding launch support in 2012
to realize Dr. Yasumura’s treatment
ideals,includingfacilitating
approval of an operating license asa clinic with in-patient capabilities
after transfer of medical corporate
status, designing and constructing
the facility building, and selecting
quipment. On launch of the clinic in
April 2017, three of our management consultants were placed onsite, and provided comprehensive
management and operational
support for the clinic’s first year ofoperation.
Sogo Medical’s Tomohiro Isayama,as operations director, oversaw
management, including managing
funds, vendor contact, and outreach to other hospitals in the region, while Keitaro Yonemura
served as assistant operations director, handling personnel admin-

istration and labor management,
and promoting smooth internal
communication. Ryo Hoshino managed medical equipment and consumables in the operating room.
Their combined teamwork covereda wide range of tasks and freed Dr.
Yasumura to focus on patient care.
Over the past year, the hospitalhas carried out about 370 surgicalprocedures. Dr. Yasumura brought
many patients over from his previous
practice, and many more arecoming to the hospital through wordof mouth and local referrals.
Satisfaction levels are very high, withpatients leaving positive remarks inthe patient comment book, such as“I’m lucky I could meet Dr.
Yasumura,” or “I never dreamed I
would regain my former state ofhealth.”Dr. Yasumura’s high-quality service and Sogo Medical’s thoroughsupport enabled Lake Town Hospital of Orthopaedics to reach out actively to the local community.

Facilitating Active
Community Outreach“We are now in an era where hospitals must compete for patients,”
says Dr. Yasumura. “Going forward,
we will reach out to the local community to gain the trust of a larger
number of residents.” After the hospital was launched, Dr. Yasumura
tasked Isayama and his team withrealizing what he had been unable toachieve in his previous practice: tocreate a place for patients to gather,and to offer healthcare education to
the community.
Dr. Yasumura explains, “If patients
have opportunities to interact, they
can obtain first-hand information onwhat surgical procedures involve, forinstance. Community healthcare
education can also give patients
optimism with regard to theirpost-operative future.” Isayama,
who worked to make the surgeon’s
concept a reality, notes that “It was
our task to create a superior
treatment environment so that Dr.
Yasumura, who provided theessential skills and vision, could
focus on patient care. I am
convinced that the high levels ofpatient satisfaction and highexpectations of the local community
reflect the significance of ourmanagement support.”
Going forward, Lake Town
Hospital of Orthopaedics’ goal is tobecome an even more integral partof the local community. It willcontinue to provide advanced
treatment to a wide range ofpatients, so each member of thecommunity may enjoy optimal
health.

Stock Information

Lake Town Hospital of Orthopaedics opened
in April 2017 in Koshigaya, Saitama
Prefecture.
Clinic director Dr. Kensuke Yasumura is ahighly trained surgeon who wants patientsfrom the local community to maintain ideal
lifestyles. He is working actively to make his
hospital indispensable to the community.

“Orthopedics can make important contributions to enhancing
quality of life. For example, patientslargely unable to walk can, thanks
to surgery, regain the ability to walkfor half an hour or more. This is
why we strive to understand whatkind of daily life patients desire,and select the appropriate
treatment and surgery from thewide range of available options torealize those desires.”

Senior Manager,
Medical Profession Management Support Division,
Higashinihon Office,Sogo Medical Co., Ltd.

Director,
Lake Town Hospital of Orthopaedics

Corporate Information

Total Management Support for
Hospitals with Admissions andSurgical Capabilities

Tomohiro Isayama

Kensuke Yasumura

Financial Section

Offering advanced,
individualized medical
services throughout thepatient’s life

Keitaro Yonemura

Corporate Governance

Leader,Higashinihon Sales Division,
Higashinihon Office,Sogo Medical Co., Ltd.

Annual Report 201829

Action Report

Medical Practice Support Business

3

Healthcare Mall Development

Offering Patient-Centered Medical Service
that Addresses Needs.

4

Healthcare Mall Development

Medical Mall Toyosu opened inJuly 2017 in Tokyo’s Koto-ku, in awaterfront area of high-rise condominiums and office towers. Numerous families reside in the area, andmany child patients were anticipated. To treat kindergarten- andelementary school-age children’s
injuries and illnesses, the mall
includes three clinics—which coverinternal
medicine,
pediatrics,
reconstructive surgery, dermatology and cosmetic surgery—as well
as a pharmacy. Each clinic is fully
equipped to make waiting timeenjoyable and relaxing for young
children.
Dr. Muramatsu, who as Director
is in charge of reconstructive andcosmetic surgery as well as

dermatology, is a graduate ofShowa University and a lecturer
there. He also coordinates actively
with Showa University Koto Toyosu
Hospital. The pharmacy offers
healthcare seminars and consultations as well as an in-homedispensing service, with the aim ofcontributing to better health foreveryone in the local community.
The mall has also responded to
the voice of the local community,
for example by extending consultation hours and opening on Saturdays from April 2018. Medical Mall
Toyosu will continue listening toresidents and meeting their needs
through patient-centered medical
service.

Healthcare Peace of Mind and Hope for People
in the Local Community:
a Second Building, with Expanded Treatment Quality and Scope.

Matsuo Medical SquareⅡ

30

SOGO MEDICAL CO., LTD.

Action Report

6

Bolstering Development

Healthcare Mall Website
In December 2017, Matsuo
Medical Square II opened its
doors. This was the secondbuilding at Matsuo Medical Square
to be launched, following Matsuo
Medical Square I in 2007. The
latter includes departments ofinternal medicine, otolaryngology,
and ophthalmology, while the newfacility adds departments of orthopedics and dermatology. This
healthcare mall is conveniently
located a five-minute walk from
Kami-katsura Station on the
Hankyu Arashiyama Line, andoffers parking for 41 vehicles.
Coordination between specialist
physicians in each department
ensures healthcare peace of mind
for patients and the community as
a whole.

Matsuo Medical Square II was
designed with patient conveniencein mind. For example, the common
area features a large elevator withcapacity for 11 people, and thebuilding incorporates a special
exterior glass façade to reduceheat from the sun. The building,like the first, also complies with
Kyoto landscape ordinances toharmonize with the surrounding
environment.
Located in a residential area,
Matsuo Medical Square II is anindispensable medical center for
local residents, and is aiming tofurther enhance medical service
quality.

We Established a Healthcare Mall Website to Share
Achievements and Knowledge Toward Fulfillment of Our
Medium-Term Management Plan Goals.

On September 13, 2017, Sogo
Medical launched its DtoD Healthcare Mall website. This new
website promotes the creation ofideal healthcare malls, and isdesigned as a resource for physicians seeking to open practices orwork in clinics in such malls. It
offers information on the merits ofestablishing practices, lists clinics
seeking physicians, and profiles
launch cases. The site also offers
information on practice launchseminars, consultation events, andother useful content.
The growing role of healthcaremalls reflects changes in society,with greater need for communication with local communities, andchanges in the medical profession
itself, with a need for greater physician specialization. To meet thesechallenges, physicians with similargoals are combining their capabilities and applying advanced skills intheir respective specialties to serve
as primary care physicians forcommunities in a new style ofmedical service.
By giving broad exposure to its
achievements to date and expertise relating to practice launch
support, Sogo Medical is seeking
to accelerate the pace of its healthcare mall development as well as
its promotion efforts aimed atdeepening physicians’ understanding.
Toachieveourmedium-term management plan
goal of developing a total of 200
healthcare malls by the end of
FY2019, we plan to promote awide range of activities.

Annual Report 2018

Stock Information

Launch consulting,leasing and installment sales,risk management

Paid consulting, leasing and installment
payments, risk management, designand construction supervision“Child developmental impairment
anddepression
are
often
influenced by family relationships,”
says Dr. Yoshida. “I believe it istherefore useful to look at thefamily as a whole and offer
treatment appropriate for thatfamily.”In addition to Drs. Ito and Yoshida, the clinic’s extensive staff
includes a physician, clinicalpsychotherapists, licensed psychiatric social workers, and nurses
ready to provide attentive consultations for patients of any age,from expectant and nursing mothers, babies, and children to adolescents and adults.

Corporate Information

Support Areas

Support Areas

Iris Psychiatric Clinic opened its
doors in November 2017 in Fukuoka City, Fukuoka. The clinic’s carestructureembodiesanewapproach, encompassing entire
families in addition to patientsthemselves. Dr. Masatoshi Ito,
Chairman of Ebetsu Suzuran
Hospital in Ebetsu City, Hokkaido,
wanted to create a clinic in his
hometownofFukuokaforresidents to consult specialists
with peace of mind. Clinic director
Dr. Keiko Yoshida was a colleagueof Ito in the Department of Psychiatry, Kyushu University Hospital.
Dr. Yoshida is a pioneer incomprehensive
psychiatricassessment of children andfamilies throughout the lifecycle.

Financial Section

Action Report

Iris Psychiatric Clinic

Corporate GovernanceLaunch consulting, leasing,merchandise sales, facilities rental,
risk management, design/construction,
pharmacy

Hospital Management Support

Optimized Psychiatric Care Centeredon Patients and Their Families.

Action Reports

Support Areas

5

President’s Message

Medical Mall Toyosu

Action ReportCompany Profile

Action Report31With “coordination” as a keyword, we are
creating pharmacies with deep local roots
across the nation.

We are actively promoting the strengthening ofpharmacy functions, for example by helping
pharmacists
acquirehighlyspecialized
capabilities and providing support for healthimprovement.
By opening new, and acquiring existing,pharmacies, we expanded our network to 687
locations.

Number of Pharmacies
493

24

687

Pharmacies687

2

As of March 31, 2018

1 2

Action Report855Pharmacy Business2014/3

18/3

Sogo Medical’s Goal
for Pharmacists andPharmacies

Sogo Medical has worked to expand the role of its pharmacies and pharmacists as “general healthcare stations.” In its“Vision for Patient-Centered Pharmacies,” the Ministry of Health, Labour and Welfare called for the need to serve in
dedicated roles as primary care pharmacists and pharmacies with healthcare support and advanced pharmaceutics
functions. We are working to achieve this vision through our “general healthcare station” pharmacies. Going forward, we will
pursue this ideal further as we respond to changes in social needs and the regulatory environment.

Sogo Pharmacies serve as “general healthcare
stations” that provide support to everyone
wishing to maintain their health.

Calls for development of primary care pharmacies with roles at the forefront of healthcare and with local roots

Ministry of Health, Labour and Welfare’s “Vision for Patient-Centered Pharmacies”
Healthcare Support Functions

Advanced Pharmaceutics Functions

Contributing to illness prevention andhealthcare support

Meeting demand for advanced pharmaceutics
management● Procurement capabilities and advice structure to enable● Coordination with medical institutions to manage sideproper selection of medications requiring guidance for use● Health advice desk, examination recommendation andeffects of cancer treatment; selection of HIV medications,etc.

introductions to medical institutions, etc.

Pharmacy Business Total Sales(¥ million)

Primary Care Pharmacists and Pharmacies

109,918

Centralization and ongoing monitoring of
information relating to use of medications

80,66072,17124-hour and in-home response

Corporate Information

96,405 95,966

Financial Section

Sogo Medical is engaged in a broad range of pharmacy
business activities nationwide, including enhancing
pharmacist specialization and providing healthcare support for
local residents. By opening new pharmacies and acquiringexisting pharmacies, we have achieved steady growth in thescope and quality of our pharmacy business.

17/3

Corporate GovernanceSupporting health for more people
through enhanced pharmacy
functions and additional locations.

16/3

5
6
14
5
2
3
12 30
40 6
17 22
39 11
10
1
77
20
6 1 3
5
10
24
20
19
8

25 9
43 6
89 18
27

Action Reports

Summary & Data

15/3

7

President’s Message

538

576

674

Expanding nationwide network
Company Profile

Creating High-Value
Pharmacies

Responding to nighttime andholiday in-home care needs

Ongoing monitoring of side effects and efficacy;
prevention of unnecessarily many or duplicate
medications and unwanted drug interactions● 24-hour response

Utilizing ICT (electronic drug history notebooks, etc.)● Pharmacological management andguidance in the use of medications
for in-home patients● Monitor prescription information for all medical institutions

visited by the patient● Monitor medications used, including nonprescription drugs,

15/3

16/3

17/3

18/3

in a centralized, ongoing manner; provide pharmacologicalmanagement and guidanceStock Information

2014/3

Coordination with medical institutions, etc.: information sharing via medical information coordination network● Prescription referral and recommendation● Provision of advice relating to medications, health,● Feedback on side effects and medication status● Information sharing via medical information coordination networketc.

● Promotion of consultation at medical institutions

Healthcare Support Pharmacy(Source: prepared by Sogo Medical from Ministry of Health, Labour and Welfare data)

32

SOGO MEDICAL CO., LTD.

Annual Report 201833

Action Report

Pharmacy Business
Action Report

1

Action Report

We are Sharing Internal Expertise to Enhance
the Quality of In-Home Care Nationwide.
Miyonodai Pharmacy Group,
which joined Sogo Medical Groupin December 2016, is equippedwith advanced expertise needed toaddress diverse in-home careneeds, including in-home guidancein the use of medications, sterile
preparations,andnighttime
services. They are currently holding
regular seminars and sharing casestudies at Sogo pharmacies
nationwide,
enhancingtheSogo Medical Promotes the Use of Generic Drugs
to Reduce Healthcare Costs.

SOGO MEDICAL CO., LTD.

promote the use of these drugs,
with the goal of an 80% utilization
rate by March 31, 2019.
At the same time, we will realize
stable operation of our pharmacies
by promoting enhanced specialization and the demonstration of
professional capabilities on thepart of our pharmacists, so thatour pharmacies will be chosen by
local residents.

Hosting Numerous HealthSupport Events

Cover makeup clinic(Sogo Pharmacy, Tenjin Chuo Store)

Frailty Syndrome*
Education and Prevention

Diagnostic tooland grip strength meter

develop Brain Training, a brain
stimulation tool, and began distributing it free at our pharmacies
across the nation in March 2018.
Going forward, we will utilize Brain
Training as a tool for supporting
those with cognitive impairment,
raise awareness of the problem
and act as another form ofcommunication between patientsand pharmacy staff to support
health promotion.

We Hold a Wide Range of Health Events to Enhance Disease
Prevention and Healthcare as Well as Quality of Life.
To support independent healthmaintenancebycommunity
residents, Sogo Medical is promoting the registration of its locations
as healthcare support pharmacies,
and actively engaging in a wide
range of health support activities.
For example, we are holding
covering makeup clinics for
women concerned about surgicalscars or pigmentation resulting

from medical treatment. We arealso hosting health support eventsand making contributions toenhancing not only prevention andhealthcare, but quality of life. Byoffering unique health support, we
aim to make our pharmacies“general healthcare stations” thatare indispensable to the local
community.

Health Recovery Before the Onset of Conditions Requiring
Nursing Care is Essential. Our Group Pharmacies are
Engaged in Education and Prevention Activities.
Since June 2017, pharmacists in
70 group pharmacies across thenation have been conducting frailty
education efforts, and providing
advice using a frailty checklist tool.
Frailty is an aging-induced condition involving declining physicaland mental capacity. It is a precursor stage to nursing care, and inmany cases it is possible to reverse

the condition through improvements in diet, increased physicalactivity, and active participation insocial activities.
Sogo Medical is working to
educate the public regarding thiscondition, which is not widely
recognized, and promote prevention support to help seniors continue to live healthy lives.

Stock Information

All Sogo Pharmacies display
posters promoting the use ofgeneric drugs. Thanks to theseand related efforts, the utilization
rate for generic pharmaceuticals
was 77% at the close of the term.
Higher utilization means lower
pharmacy sales, but plays anessential role in reducing the costburden on patients and the healthcare system in Japan. Over the
coming term, we will continue to34

in-home care capabilities of theGroup as a whole. Thanks to these
efforts, 86% of our pharmacies
were offering in-home careservices at the close of the term.
Sogo Medical representatives also
engaged in other diverse in-homecare-related activities, including apresentation
entitled”Bedsore
Assessment” at the 10th Annual
Meeting of the Japanese Associationof Home Care Pharmacies.

Brain Training(Q&A and advice
example)The number of individuals suffering from cognitive impairment inJapan is expected to reach sevenmillion by 2025. This trend will
require a comprehensive responsethat includes medical care, nursing
care, housing, and daily life
support, and pharmacists will be
required to enhance their capacity
to care for such patients.
Sogo Medical collaborated withgroup company Hokendohjinsha
Inc. and medical specialists to

Corporate Information

Active Promotion ofGeneric Drugs

To date, 36 pharmacists haveachieved certification. In-homecarespecialist
pharmacists
achievecertification
throughtraining in patient care procedures
matched to their daily lives andhow their work relates to othermedical professions, and to date
15 specialists are now active in thefield, having been certified. Byenhancing the specialist capabilities of our pharmacists, we aremeeting a wide range of community needs.

We Distributed Our Original Brain Stimulation Tool, Developed
under the Supervision of Specialists, at All of Our Pharmacies.
We are Bolstering our Support of Those with Cognitive
Impairment and Promoting Health Preservation.

Financial Section

Sterile dispensing using clean bench

Sogo Medical is a pioneer in
specialist education and training
for pharmacists. In 2011, welaunched an internal certification
program for specialist cancer anddiabetes pharmacists. In 2016, weadded a program for in-home carespecialist pharmacists.
Our companywide certification
program for specialist cancer anddiabetes pharmacists includes
systematic education relating tothese diseases as well as patient
psychology and care procedures.

Original Development andDistribution of Cognitive
Impairment Mitigation Tool

Corporate GovernanceDeploying In-Home Care
Activities Nationwide

To Enhance Treatment Quality, We are Developing
Pharmacists with Highly Specialized Skills In-House.

Action Reports

Cancer Conversation Café

Reinforcing Healthcare Support Functions

President’s Message

Developing Specialist
Pharmacists to Meet Local
Needs

Company Profile

Primary Care Pharmacist & Pharmacy Activities

2*A syndrome of weakened mental and physical capacity due to aging

Annual Report 201835

President’s Message

Launch of EASY VIEW
Bedside Arm-Mounted
MonitorCompany Profile

Other Topics

In Response to Demand from Medical Facilities,
We Developed the Nation’s First Arm-Mounted Monitor
Specifically for Use during Dialysis Procedures.

Corporate GovernanceCorporate Governance

VIEW, an arm-mounted monitor
developed specifically to reduce
patient stress. The position of the
13.3-inch, wide-screen monitor
can be easily adjusted, and its highresolution
makes
for
more
enjoyable viewing.
EASY VIEW is the only productof its type currently available inJapan. With multiple mounting
options and adaptability to a wide
range of beds, demand is
expected from dialysis facilities
throughout Japan.

Action Reports

Japan’s aging population means
more patients undergoing artificial
dialysis. As of December 31, 2016,
approximately 330,000 patientswere receiving dialysis treatment
an average of three times weekly,
with each treatment lasting aroundfour hours.
During dialysis, patients mustremain relatively immobile for an
extended period. In response torequests from dialysis facilities for atelevision monitor for patient use,
Sogo Medical developed EASY

38 Sogo Medical from the Perspective of External Directors
40 Directors, Audit & Supervisory Board Members and Executive Officers
42 Corporate Governance

Financial Section

44 Internal Control System and Compliance System
IT Management Award

Our Revamped Accounting System was
Recognized with a Prestigious IT Award.

SOGO MEDICAL CO., LTD.

Stock Information36

lining operations through a new
accounting system, evaluated andselected the system for implementation, and managed risk while
acting as an early technology
adopter.
Going forward, Sogo Medical
will apply information technology
effectively to its enterprise activities
towardfulfillmentofthemedium-term management plan,
through more efficient management and new business strategy
formulation.

Corporate Information

The IT Management Award ispresented by the Japan Institute ofInformation Technology to enterprises, organizations, and individuals demonstrating particularly
innovative use of information
technology to enhance theirbusiness practices.
Sogo Medical Group received
the award for the accounting
system it introduced between June2015 and October 2016 under theleadership of its IT Strategy
Division, which identified requirements for rationalizing and stream-

45 CSR Management & Topics

Annual Report 201837

Sogo Medical from the Perspective of External Directors
Committed to meeting our important responsibilities
as a leading company.
Building on 40 years of history, we are looking to everstronger corporate governance.
Director (External Director)

In order to expand the organization going forward,
it is imperative for us to promote human resources development
at the management level and further strengthen the governancestructure of the Company.

Kiyotaka Watanabe

Takashi Kamite

Prior positions held: President & CEO of Mitsui & Co. (Canada) Ltd.; Executive Managing Officer and Chief Operating Officer, Iron & Steel
Products Business Unit, Mitsui & Co. Ltd.; Senior Executive Officer and President of the Kyushu Branch at Kyushu Electric Power Co.,
Inc.; Overseas Business Division Advisor then Chairman at Mizoe Kensetsu Corporation; Director at Sogo Medical since June 2015.

The Company has been practicing transparent,
fair, and swift decision making and has createdeffective corporate governance systems. Goingforward, we will be required to operate and rebuild
governance systems appropriately in response tochanges in industry trends and management
environments. I see my role in offering objective
opinions on the appropriateness of the Company’s

Profilebusiness decisions from medium- and long-term
perspectives using my 42 years of knowledge andexperience in finance. Through the exchange of
opinions with other directors, I will concern myself
also with fostering management-level humanresources and will do my best to contribute tostrengthening the Company’s governance systems
with a view to the future growth of our organization.

Prior positions held: Executive Officer at Tokyo Auto Leasing Co., Ltd.; Executive Officer and Managing Executive Director atCentury Tokyo Leasing Corporation (now Tokyo Century Corporation). Currently, Managing Executive Director and Director of theMetro Tokyo Business Unit at Tokyo Century Corporation. Director at Sogo Medical since June 2017.

Annual Report 2018

Stock Information

corporations are at risk of falling victim to the ‘big
company disease’ where problems get swept under
the carpet. Sogo Medical’s board of directors
meetings have always been a place where doubts
and concerns are discussed from the perspective of
our shareholders in a purposefully frank and honest
manner, and I, too, make a point of speaking mymind where necessary for the sake of a morein-depth discussion.

Director (External Director)

Corporate Information

SOGO MEDICAL CO., LTD.

Director (External Director)

Financial Section

By intensifying the discussion at the board of directors,
we will avoid the pitfalls of the ‘big company disease’ andenhance management transparency, soundness,and compliance.

I hold the Company’s corporate governance inhigh regard. It is wonderful to feel that centering on
executives and employees our corporate philosophy
is being correctly appreciated and executed in a
law-abiding spirit. Even so, our corporate
governance will need further strengthening going
forward, and in order to meet the expectations of ourmany stakeholders it is imperative for discussions at
the board of directors to intensify. Large

38

Prior positions held: Executive Officer and General Manager of the Fukuoka Branch at the Industrial Bank of Japan, Ltd.; Managing
Executive Director at Mizuho Bank, Ltd.; President of Kokunai Shinpan Co., Ltd.; Chairman of Rakuten KC Co., Ltd. Currently, aSpecial Advisor to Polaris Capital Group Co., Ltd.; and an Auditor at Innova, Inc. Director at Sogo Medical since June 2016.

Corporate Governance

Profileefforts to reinforce corporate governance and havedeliberated the adoption of a holding company
system. However, in accordance with the concept ofgood medical practice through good management,
the Company is called upon to continue contributing
to society through the advancement and growth of
its operations. I too will do my best to put myexperience in banking and top-level business
management to good use in support of these
efforts.

Action Reports

The Company has, from an early stage, taken
steps to strengthen corporate governance,
specifically by increasing the number of external
directors and external auditors. Moreover, bydefining business management benchmarks, wehave strengthened insight into the business
management of group affiliates, and by establishingdetailed reporting to the board of directors, reflecteda strong focus on transparent management which I
hold in high regard. More recently, the Company
established an advisory committee while keeping up

President’s Message

Eiichi Seki

ProfileCompany Profile

The year 2018 marks the 40th founding anniversary of Sogo Medical.
As we transition to a holding company system,
and with our eyes on expanding the scale of our operations,the question arises how to best reinforce corporate governance.

39Company Profile

Directors, Audit & Supervisory Board Members
and Executive Officers (As of June 22, 2018)

President’s Message

Executive Officers

Directors

Shinya Mikita

Makoto Kuroda

Masatoshi Sadahisa

Representative Director, President
and Chief Executive Officer

Representative Director,
Executive Vice President

Director & Senior Executive
Managing Officer

Director & Senior Executive
Managing Officer

Shinya Mikita*

President and Chief Executive
Officer

Executive Vice President

Makoto Kuroda*

Masatoshi Sadahisa*

Moritaka Nakashima*

Senior Executive Managing Officer

Senior Executive Managing Officer

Senior Executive Managing Officer

Takao Nakashima*
Senior Executive Managing Officer

Action Reports

Kenji Sakamoto

Kenji Sakamoto*General Manager of DtoD Strategy
Division

Takao Nakashima

Itsuo Tashiro

Director & Senior Executive
Managing Officer

Director & Senior Executive
Managing Officer

Director & Chairman

Takashi Kamite

Director (External Director)

Director (External Director)

Director (External Director)

Audit & Supervisory Board Members

Akihiro Shitozawa

Executive Managing Officer

Executive Managing Officer

Executive Managing Officer

Executive Managing Officer

Manager of President's Office

Manager of Kyushu Branch Office

General Manager of Pharmacy Business
Division

General Manager of Sales Promotion
Division

Shigeyuki Nakano

Takahide Terada

Genichi Shimmura

Kazuya Watabe

Executive Managing Officer

Senior Executive Officer

Senior Executive Officer

Senior Executive Officer

General Manager of Development
Division

Assistant to Manager of Kyushu Office
Dispatched to HAMIQ

Deputy General Manager of DtoD
Strategy Divison

General Manager of Administration
DivisionManager of General Affairs Department

Nobuo Fujii

Osamu Yamasaki

Katsuyuki Honda

Toshikazu Matsuo

Senior Executive Officer

Senior Executive Officer

Senior Executive Officer

Executive Officer

Assistant to General Manager ofDevelopment Division

Manager of Nishinihon Branch Office

General Manager of Personnel Division
Manager of Hiring Department

Deputy General Manager of Pharmacy
Business Division

Masatomo Hara

Tetsuro Irie

Takeshi Togami

Tadahiro Dantsuka

Executive Officer

Executive Officer

Executive Officer

Executive Officer

Deputy General Manager of Pharmacy
Business Division
Manager of Home Medical Care
Promotion Department

General Manager of Consulting Division
Manager of Consulting Promotion
Department

General Manager of Management
Strategy Division

Deputy General Manager of Management
Strategy Division

Stock Information

Mitsuhiro Tateyama
Executive Officer
Manager of Higashinihon Branch Office40

Shoji Hirao

Seio Yamakawa

Naomasa Mitsukado

Setsuko Gondo

Full-time Audit & Supervisory
Board Member

Full-time External Audit &Supervisory Board Member

External Audit & Supervisory
Board Member

External Audit & Supervisory
Board Member

SOGO MEDICAL CO., LTD.

Corporate Information

Eiichi Seki

Yuriko Tanigawa

Financial Section

Kiyotaka Watanabe

Joji Haraguchi

Corporate GovernanceMoritaka Nakashima

Kohichi Hashimoto*Executive officers indicated with an asterisk also serve on the board of directors.

Annual Report 201841

Company Profile

Corporate Governancesame time as enhancing corporate governance by strengthening, improving, and implementing functional systems requiredby law, including the general meeting of shareholders, board of
directors, audit and supervisory board, and independent
external auditors.
We also aim to increase management transparency byproviding fast, accurate, and wide-ranging information disclosure to all our shareholders and investors.

General Meeting of Shareholders
Selection / Dismissal

Selection / Dismissal

Board of Directors

Audit & Supervisory
Board

Directors
10 members

Audit(3 external directors)
Financial Audit
Selection /Dismissal /SupervisionCorporate Governance System (As of June 22, 2018)

Selection /Dismissal /Supervision

Selection / Dismissal

Audit & Supervisory
Board Members
4 members (3 external auditors)
Independent External Auditors(Mutual Coordination)
Financial Audit

auditing division, consisting of 9 members, auditing all divisions
and reporting the results directly to the president. Audited
divisions are given guidance on where they need to improve,with further reporting required on whether improvement has
been made or not, ensuring an efficient audit process.
Collectively, the audit and supervisory board members,
corporate auditing division, independent external auditors, andinternal control division exchange information regarding audit
planning and audit results as required, working to achieve
efficient and effective audits.

Internal Control
Internal Auditing

Divisions

Help Desk
8 Sogo Medical employees
3 outside lawyers

ReportRequest Advice /Report Information

Compliance Hotline

Officer Remuneration

officer) decides remuneration for directors after consulting withthe board of directors and compensation for auditors is decided
after discussion among auditors, in both cases within the limits
decided at the general meeting of shareholders.

Shareholders monitor remuneration through a limit to the total
amount of remuneration for directors and audit and supervisoryboard members (including bonuses) decided throughresolutions at the general meeting of shareholders. The
president (who is the representative director and an executive

Total Remuneration of Each Category of Officers in the
Fiscal Year Ending March 31, 2018
Total by form of remuneration (¥ million)
Officer category

Number ofrecipients

Basic
Stock
Bonusescompensation options

Directors(not including external directors)

8

218

218

–

–

Audit & supervisoryboard members

1

12

12

–

–

Outside officers

8

37

37

–

–

Total

17

267

267

–

–

(not including external auditors)

Notes: 1. Remuneration of directors (not including external directors)
includes profit-linked compensation as decided at theboard of directors’ meeting held on May 21, 2015.
2. Remuneration for Sogo Medical officers only includes theamount paid by Sogo Medical, excluding payments fromsubsidiaries.
3. No Sogo Medical officer receives a consolidated salary of
more than ¥100 million.
4. Annual remuneration for directors (not including employee
salaries for people who are both directors and employees)
was given a firm limit of ¥300 million with a limit to increases of
2% of the previous fiscal year’s consolidated profit attributableto owners of the parent company in a resolution at the 34th
General Meeting of Shareholders held on June 20, 2012.
5. Annual compensation for audit and supervisory board
members was limited to ¥50 million in a resolution at the 24th
General Meeting of Shareholders held on June 18, 2002.

Stock Information

The audit and supervisory board comprises 4 auditors, ofwhich 2 are full-time auditors and 2 are part-time auditors.
Three of these are external auditors to ensure fairness andtransparency. Each auditor attends board of directors’
meetings, while full-time auditors also attend and offer opinions
at managing directors’ meetings, individual project meetings,
and management meetings.
Auditors monitor the legality of operations based on financial
standards, audit planning, and task divisions, as outlined by
the audit and supervisory board.
Internal audits are held systematically by the corporate

Internal Control DivisionCorporate Information

Auditing System (As of June 22, 2018)

ReportRepresentative Director, President and Chief Executive Officer
Executive Officers

Corporate Auditing Division

Financial Section

including the president deliberate on management-related
issues and exchange information.
Sogo Medical has adopted an executive officer system inwhich officers selected by the board of directors perform theadministration of business matters under the direction of theboard of directors.
The company also holds regular new employee training andgradable training through the year as well as working to
improve compliance with workplace training on the subject ofcorporate ethics and compliance management given by staff
responsible for promoting compliance.
Sogo Medical declares the following basic policy, “We do
not involve ourselves with anti-social forces or clientcompanies who have a relationship with anti-social forces,
under any circumstances.”
For the purpose of removing anti-social forces, together withthe cooperation of outside expert organizations such as
lawyers and relevant administrative bodies, we will work as agroup to create a corresponding structure.

Corporate GovernanceThe board of directors is made up of 10 members, of which 3
are outside directors, reflecting the company’s size whileemphasizing mobility.
Sogo Medical has adopted an audit and supervisory board
system with a board of auditors and believes including external
auditors allows for the effective monitoring of management.
Board of directors’ meetings are held every month as a
general rule with decisions made about important company
matters.
Managing directors’ meetings attended by representative
directors, working managing directors and full-time directors
are held twice per month, as a general rule, to make decisions
about which matters to discuss at board of directors’ meetings
and about important matters that are not decided at board
meetings. Individual project meetings attended by the vicepresident and division managers are held twice monthly as
rule, which determine important matters other than matters to
be referred to the managing directors’ meeting and matters tobe decided by the managing directors’ meeting. Additionally,
management meetings attended by executive officers

Corporate Auditor Division

Action Reports

Sogo Medical considers one of its most important issues
facing management to be recognizing the importance ofcorporate ethics based on legal compliance, while also making
prompt decisions in response to the ever-changing businessenvironment and working to make management sounder inorder to record continued corporate value. To achieve that, it isnecessary to build good relationships with customers, clients,
local communities, employees, and other stakeholders, at the

President’s Message

Governance Systems (As of June 22, 2018)

Basic Policy

6. At the meeting of the board of directors held May 21, 2015, it
was decided to introduce a share-based remuneration system.

42

SOGO MEDICAL CO., LTD.

Annual Report 201843

CSR Management & Topics

Our CSR activities are the very same as our business activities—working tobuild a better society through good medical practice.
We work hard to develop valuable human resources who can make good
medical practice and a better society a reality.

1. We shall understand and share our management principles and fulfill our corporate mission through our work.

Action Reports

Four Principal Elements of CSR

President’s Message

Sogo Medical is striving to build up its Group-wide compliance system by establishing a common corporate charter and code of ethics
shared by the Sogo Medical Group.
In order for directors and employees to perform their duties with corporate social responsibility and corporate ethics in mind, we put
our compliance policy (Sogo Medical action standards) into practice, while making the policy thoroughly understood and enforced. Inorder for directors and employees of the Sogo Medical Group to perform their duties in accordance with the law and the articles ofassociation, we have placed a director in charge of compliance (legal department management officer) as well as formed an internal
control committee, which is managed by the compliance division (according to policies of dividing duties).
We have also set up a help desk (compliance hotline), which employees can contact with requests for advice or to report
information and get a speedy response.
In order to enhance compliance knowledge among directors and employees of the Sogo Medical Group, we are upgrading training,as part of our efforts to improve knowledge of respecting compliance.

Company Profile

Internal Control System and Compliance System

2. We shall provide services that surpass customer expectations.
3. We shall create an environment in which employees feel secure and derive fulfillment in their work.
4. As a member of society, we shall be committed to compliance and earn the trust of customers and other people.
Sogo Medical has a system in place for storing and managing information related to work carried out by directors. Based on laws andinternal regulations, directors make and keep the minutes of board meetings and other information related to important work duties
as well as the decisions made, which are collectively recorded and managed appropriately.
We have also established document management regulations for directors’ decisions and reports, based on which we store andmanage this information. Information is managed carefully based on our information management, information system management
regulations, and personal information protection regulations.

Compliance Efforts and Stance

Meeting the responsibilities
required by society
Fulfilling our
responsibility as
a company

Ethical practiceOurcompliance

Generalcompliance
Regulatory compliance(compliance in a narrow sense)

Stock Information

Compliance is generally thought of in the sense of “regulatorycompliance,” or conforming with laws and internal regulations.
However, we undertake compliance in a broader sense. In
addition to complying with laws, we consider compliance to mean
acting in an ethical manner and eschewing any activity that would
inconvenience society as we strive aggressively to meet society’s
expectations. Our compliance goes beyond obeying the letter ofthe law, and our actions extend to a respect for the social norms
that form the background for these laws.
We endeavor to be a company that delivers essential value to all
people. As such, we remain sensitive to changes in society,considering individually what society requires and following
through with actions to satisfy those needs.

Our Pledge, Mission Statement, Corporate Credo

44

SOGO MEDICAL CO., LTD.

Corporate Information

We have installed a function in the compliance division that supervises risk management of the entire Group and placed a director in
charge of it. In order to establish fundamental policy and promotion systems for risk management, we have determined risk
management regulations, and constructed and put into operation risk management systems. The compliance division evaluates theeffectiveness of the establishment and operations of risk management. In the case a problem is identified, the division provides
recommendations for improvement to the respective departments to enhance effective monitoring.
Also, to make precise response guidelines for the entire Group when a crisis occurs, we have determined standard crisis
management regulations, created a business continuity plan (BCP) and a disaster prevention manual, and are preparing a system thatallows accurate response in times of emergency.

Financial Section

Risk Management System

The Sogo Medical Group’s CSR activities are the same as its business activities—to build a better society through good
medical practice.
Our job is to support good medical practice, and that is connected to the development of society and improving the lives ofmany people. Through supporting good medical practice in the future, we aim to fulfill our social mission as a company.

Corporate Governance

Information Management System

Annual Report 201845

Company Profile

CSR Management & Topics

Promoting Work-Life Balance

The significance of Sogo Medical’s efforts to promote diversity
lies in our employees’ realization of our mission statement
through teamwork and the demonstration of their personalcapabilities as they actively utilize the system to realize theirpersonal career vision within their practice of Our Pledge, ourMission Statement, and our Corporate Credo.
In April 2017, the Personnel Division, which functions as thecore promoter of diversity within the company, established theDiversity Promotion Group. In addition to measures to promote
greater utilization of female employees and to change
employees’ approach to work, the group will work to promptly
implement broad measures to further utilize a diverse range ofindividuals, including persons with disabilities and senior citizens.

We promote work-life balance because we believe that as our
employees grow, our company grows with them. In particular,
because more than half of our pharmacists are women, it isessential that we create work environments that make it easy for
women to work and offer them growth opportunities.
In 2007 the Company received Ministry of Health, Labour andMajor Activity 1:

Promoting Female Employees’ Activities

Job transfer system

Leadership training program for female employees

Promoting Employment for Persons with Disabilities

Launching a corporate network to promote employmentof persons with disabilities

Promotion of Healthcare Management
The good health of our employees is not only a source of pride, it
is also a valuable asset of the Company. Based on this concept,
the Company has been promoting health management at theworkplace, such as raising the number of health checks above thestatutory amount for all employees, including part-time staff
members. Responsible for employee health promotion is the
Health Support Office (the current Health Support Group),established in 2012. In April 2017, in recognition of the importanceof proactive healthcare management for growth-supportingorganization building, Sogo Medical declared itself a health-driven
company to the Tokyo Pharmaceutical Industry Health InsuranceSociety. The Company will keep up its efforts to maintain andimprove the health of all employees.

With the aim of ongoing human resource development, we are
adopting and implementing a graded training structure
corresponding to employees’ growth and roles, including
graded programs and executive development programs. Our

Kyushu Railway Company

Daisho Co., Ltd.

GooDay Co., Ltd.

etc.

Principal Training Programs• Practice Process Innovation (PPI) Internal Certification
PPI is Sogo Medical’s internal certification system for personnel working in
the areas of start-up support, personnel placement, and pharmacy
management.

Start-up
SupportPPISOGO MEDICAL CO., LTD.

PPI skills by level

Personnel
Placement
PPI

PharmacyManagement
PPI

RentalsandLeasing

Leadership
Implementation(ability to perform)
Knowledge and skills(ability to retain)
Level I(PPI: Practice Process Innovation)46

management principles are the foundation of every training
program, and through these programs we are working to realize
the characteristics that are needed in each employee.

Level II

Level IIIses ce
sin man
u
B for
r
pe
Level IV

Level V• Gradable OJT Educational System (GOES) for Pharmacists
GOES is an independent on-the-job training system for helping
pharmacists fully utilize their skills.

New Employee
Training•Introductory residentialtraining course for new
employees hired
regularly•OJT / Block training
for new employees•Follow-up training

Skill
Improvement
Training•Communication•Medical knowledge•Pharmaceutical affairs,
technical skills,
behavior training(practical training)•Physical
assessment
training•In-home medicalcare training•Overseas training
etc.
•Board-certified
pharmacy
specialist training

Stock Information

Shin-Idemitsu Co., Ltd.

• Establishment of a consultation desk attended by a full-time publichealth nurse• Establishment of a consultation desk attended by specialized external
staff (open around the clock)• Self-care training and mental healthcare training for managers withrespect to subordinates• Mandatory doctor interviews and guidance for those working long hours• Annual stress checks (for all employees including part-time staff)• Fully company-paid influenza vaccination• Breast cancer and cervical cancer examination cost paid by theCompany• Discounts on user fees of affiliated sports clubs, etc.

Development of Human Resources

Businessfoundations

Participating Enterprises

Examples of healthcare management measures

Skills Improvement

In April 2017 the Company initiated a study and informationexchange round-table to be shared with other companies on thecreation of better environments for the employment andretention of job seekers with disabilities. The Company has been
holding meetings with information exchanges and lectures byexternal presenters surrounding participating companies’ casestudies, issues, and initiatives.

Promoting the taking of paid vacation and a weekly refreshment day, etc.

Corporate Information

Major Activity 2:

On September 28, 2017, the Company
received
accreditation
under the “Act on Promotion of
Women’sParticipation
andAdvancement in the Workplace”(Women’s Activities PromotionAct) (also known as “Eruboshi”
Certification). This accreditation isawarded by the Minister of
Health, Labour and Welfare tocompanies that have formulated
and filed action plans for promoting women’s participation in theworkplace and whose implemented relevant measures havebeen noted for their excellence.
Out of three available accreditation levels the Company received
accreditation for the second.

• Addressing the problem of long working hours

Financial Section

This program fosters female personnel capable of exercising leadershipby providing instruction in themindset and skills required forleadership positions and in establishing clarity about personal life plans.
From the training start in fiscal year
2015 until fiscal year 2017 theprogram had 45 participants.

In June 2017 the Diversity Promotion Group, newly establishedin the personnel department in April 2017, launched a partial
teleworking arrangement on a trial basis. Starting in January
2018, the teleworking arrangement has also been available
company-wide on a trial basis to employees withoutfamily-related childcare or eldercare commitments.

Introduction of childcare and nursing care systems that surpass legal
requirements, as well as wider application of support leave“Eruboshi” certification as a promoter of women’s
participation in the workplace

Telework on a trial basis

Corporate GovernanceIn fiscal year 2013 the Company initiated a job transfer systemenvisioned to create a path from clerical positions toprofessional positions as managers. In the four years since thelaunch of the system, 23 female employees succeeded inachieving job transfers to professional positions.

TopicsAction Reports

Examples of Systems to Support Diverse Work Styles• Support for employees with non-work commitments

Welfare accreditation as an enterprise that supports
childrearing. Along with acquiring the “Kurumin Mark” which is
given to companies that promote next-generation childcare
support policies, the Company has further stepped up its efforts
to create and encourage the application of internal regulationsaligned with the life plans of female employees.

President’s Message

Promoting Diversity

GOES Gradable OJT Educational System for Pharmacists

Annual Report 201847

Company ProfileFive-Year Summary of Consolidated Financial Statements
Years Ended March 31

56 Risk Information

2018

Net sales(¥ million)

103,318

107,945

120,776

122,216

135,431

Operating income(¥ million)

5,014

5,017

6,087

6,248

7,189

Ordinary income(¥ million)

5,068

5,227

6,196

6,440

7,228

Net income attributable to owners of the parent(¥ million)

2,856

2,774

2,318

3,779

4,243

Total net assets(¥ million)

23,934

26,52129,64632,88036,526

Total assets(¥ million)

66,982

69,811

74,62186,76089,748

Net assets per share(yen)

827.87912.07983.571,089.23

1,210.69

Net income per share

(yen)

98.91

96.10

77.32

126.26141.74

Cash dividends per share

(yen)

80.00

80.00

45.00

50.00

60.00

(Includes interim dividend)(yen)(40.00)(40.00)(22.50)(25.00)(27.50)

Dividend payout ratio

(%)

20.2

20.8

29.1

19.8

21.2

Capital adequacy ratio

(%)

35.7

37.7

39.5

37.6

40.4

Net income to shareholders’ equity ratio (ROE)

(%)

12.6

11.0

8.3

12.2

12.3

Price-earnings ratio(times)

10.5

17.6

24.7

16.6

21.3

Price-to-book ratio(times)

1.2

1.8

1.9

1.9

2.8

(thousands of shares)

7,670

7,670

15,34015,34015,340Cash flows from operating activities(¥ million)

7,461

6,051

7,004

10,931

10,630Cash flows from investing activities(¥ million)(5,335)(5,296)(4,981)(9,933)(2,963)

Cash flows from financing activities(¥ million)(1,370)(1,637)

(635)

3,301

(3,871)

Cash and cash equivalents at end of period(¥ million)

5,851

4,968

6,356

10,655

14,450

Number of regular employees(people)

2,650

2,951

3,233

4,047

3,978

Number of part-time employees(people)

1,064

1,190

1,208

1,132

1,383

Number of shares outstanding

Note: The number of regular and part-time employees indicates the average number of people employed during the year (excluding members of the Sogo
Medical Group dispatched outside the Group and including personnel dispatched from outside the Group to the Sogo Medical Group). Part-time
employees indicates people working part-time, contract employees, and dispatched personnel.

Years Ended March 31

2014

2015

2016

2017

2018

(%)

4.9

4.6

5.0

5.1

5.3

Ordinary income to net sales ratio

(%)

4.9

4.8

5.1

5.3

5.3

Net income to net sales ratio

(%)

2.8

2.6

1.9

3.1

3.1

(times)

1.5

1.5

1.6

1.4

1.5

Return on assets

(%)

8.2

7.6

8.6

8.0

8.2

Current ratio

(%)

122.0

121.5

125.5

135.4

143.8

Fixed assets to capitalization

(%)

81.7

83.7

81.7

78.0

73.8

Interest-bearing debt ratio

(%)

23.2

23.7

24.7

28.3

26.2

(times)

0.40

0.44

0.41

0.42

0.25

Total assets turnover

Net debt-to-equity ratio

Stock Information

Operating income to net sales ratio

Corporate Information

Other Financial Data (Consolidated)

Financial Section

58 Consolidated Financial Statements

2017

Corporate Governance

50 Management's Discussion and Analysis

2016

Action Reports

49 Five-Year Summary of Consolidated Financial Statements

2015

President’s Message

Financial Section

2014

Notes: 1. Interest-bearing debt includes lease obligations and installment purchase accounts payable that are included in the consolidated balance sheet.
2. Method of calculating the net debt-to-equity ratio: (Interest-bearing debt – cash and deposits)/shareholders’ equity.
(Dated April 1, 2015, Sogo Medical instituted a 2-for-1 common stock split.
Dated April 1, 2018, Sogo Medical instituted a 2-for-1 common stock split. Net assets and net income per share have been calculated assuming that the stock
split was instituted at the start of FY2013.)

48

SOGO MEDICAL CO., LTD.

Annual Report 201849

Company Profile

Management’s Discussion and Analysis

Overview of Performance During the Year

2016

2017

2018

Net sales (¥ million)

120,776

122,216

135,431

Medical Practice Support 23,302

25,30524,548Consulting

1,894

2,035

2,247

Rental

5,465

6,836

5,676

Leasing and Installment 11,035

10,153

9,700

Others

4,905

6,280

6,923

Pharmacies

96,40595,966109,918

Others

1,068

944

964

Operating income (¥ million) 6,087

6,248

7,189

137

986

884

6,655

6,069

7,139

Medical Practice Support
Pharmacies

(114)

(52)

(22)

Elimination/Corporate

(591)

(754)

(811)

Sales by Business
MedicalPractice
SupportChange in Segment Classification Method(¥ million)

964
1,068

944

96,40595,96623,302
2016/3109,918

25,305
17/3

24,548
18/3

MedicalPractice
SupportPharmacies

OthersThe DtoD (Doctor to Doctor) system, which offers
support for the succession of medical practices, healthcare coordination, and practice transfers, saw theregistration of 74,898 employed doctors wishing totransfer/start-up a practice by the end of the fiscal
period (a year-on-year increase of 5,739).
As to healthcare mall development, aimed at creating
community healthcare facilities that allow local residents
to continue living comfortably in the accustomed
environments of their cities, the number of healthcaremalls at the end of the fiscal year stood at 94. With aview to attaining the target of 200 healthcare malls
projected for the end of the fiscal year to March 2020
(the target under the medium-term management plan),
we reinforced relevant frameworks by strengthening thehealthcare mall division in the Tokyo metropolitan areaand by newly establishing a healthcare mall division in
the Kansai area. Moreover, we also established thehealthcare mall start-up support website, “DtoD Healthcare Mall” (https://www.clinic-mall.com/). In addition, as
part of our consultations to support doctors’ diverse
work styles, we held conventional start-up seminars,
seminars under the banner of “doctors realizing their
dreams,” and seminars for female doctors. Theseseminars all support doctors in planning their ideal
careers, and thus promote efforts to meet doctors’
diverse needs.
On October 2, 2017, the Akasaka Toranomon Clinic
opened to the public as a specialized treatment healthcare mall with advanced acute care capabilities. The
Company provided start-up and management support,
and the clinic marks a pioneering endeavor for theCompany.
Net sales revenues at consulting operations totaled¥2,247 million (a year-on-year increase of 10.4%),
reflecting higher revenues from business management
support consulting, healthcare mall start-up consulting,and property rental revenues.

(3) Leasing and Installment
Although the market environment continues to be severe dueto the effects of the negative-interest regime, the Company’s
support operations predicated on our strengths in consulting
worked to promote healthcare malls and start-up support aswell as new medical equipment introductions and replacements associated with hospital rebuilding projects. As a result,the lease contract volume increased compared with theprevious fiscal year. However, the result of recording revenue
derived from lease contracts as stock to raise the capital ratio
meant a decline in reported product sales (re-leasing), leaving
net sales at ¥9,700 million (a year-on-year decrease of 4.5%).

(4) Others
Higher sales related to medical facility design and construction, among other factors, lifted net sales of operations
incidental to medical practice support to ¥6,923 million (ayear-on-year increase of 10.2%).
As a result of the foregoing, medical practice support net
sales decreased to ¥24,548 million (a year-on-year
decrease of 3.0%). Income, despite higher income fromexpanded sales at the consulting business, totaled ¥884
million (a year-on-year decrease of 10.3%) in operating
income from medical practice support, reflecting theinfluence of recording revenue derived from rental andleasing contracts as stock to raise the capital ratio.

(¥ million)

Consulting Sales

Elimination/Corporate

1,894

Rental Sales
2,035

2,247 (¥ million)

Leasing and Installment Sales
Sales of rental contracts

Rental

6,069

2,003
800

137
(114)
(591)
2016/3

986
(52)
(754)
17/3

884
(22)
(811)

4,665

SOGO MEDICAL CO., LTD.

917

4,758

Sales of leasing contracts
Leasing & Installment(¥ million)
Sales of medical equipment

923
1,421

1,070
1,308

1,342
1,215

8,690

7,774

7,142

18/3
2016/350

4,832(¥ million)

Stock Information

7,139
6,655

(1) Consulting

Corporate Information

Operating Income by Business

Medical Practice Support

Financial Section

From this fiscal year, and in accordance with our
medium-term management plan, we devised a segmentclassification strategy to implement segment activities
founded on rapid decision-making, which involves areconsideration of the organizational and management
systems centered on the segments. Alongside this, wehave reevaluated our segment classification method,changing the previous reporting segments from
Higashinihon, Nishinihon and Kyushu, to Medical Practice
Support, Pharmacies, and Others.
We have applied these new terms to segments forcomparisons with previous years.

OthersPharmacies

On the product development side, as a new initiative, onJanuary 5, 2018, we released the EASY VIEW bedsidearm-mounted monitor for dialysis patients, in response torequests This product is based on the wishes voiced bydialysis facilities and patients, and as such represents an
original product with innovative functions. It is the only TV
set in Japan equipped with an integrated arm.
On the sales front, continuing from the previous fiscal
year, we accommodated requests from rental-user medical
institutions for contract renewals after the transition todigital terrestrial broadcasting. The extension of rental
contracts and as a result of using recording revenue derived
from rental contracts as stock to raise the capital ratio, theperiod under review saw a decline in reported income fromproduct sales (re-rentals) that are our source of cash inflow,
leaving net sales at ¥5,676 million (a year-on-year decreaseof 17.0%).

Corporate Governance

Others(2) Rental

By Business

Action Reports

Starting in April 2017, the Company launched its Action
2020 medium-term management plan, which covers aperiod of 3 years. In FY2017, the first year of themedium-term management plan, surrounding the theme of
the realization of a Japanese healthcare business model,
our efforts focused on healthcare mall development,
management support for hospitals, and the creation ofhigh-value pharmacies. And with a view to realizing our
Vision 2028, that is, the completion of the Japanese
healthcare business model, we worked on the
supplementation and strengthening of the functions ofexisting businesses and on expanding business fields into
medical peripheral businesses, and pushed ahead withcreating the foundations of regional healthcare networks.
The Company’s business results for the period underreview reflect overall performance driven by strong sales at
pharmacy operations, with net sales of ¥135,431 million (ayear-on-year increase of 10.8%). Income showed a similar
increase, with operating income totaling ¥7,189 million (a15.1% increase), ordinary income of ¥7,228 million (a 12.2%
increase), and ¥4,243 million (a 12.3% increase) in profit
attributable to owners of the parent company.

Years Ended March 31

President’s Message

1. Operation Results

17/3

18/3

2016/3

17/3

18/3

2016/3

17/3

18/3

Annual Report 201851

Company Profile

Management’s Discussion and Analysis

OthersWe have been promoting efforts to make our pharmacies“general healthcare stations” that local residents will
choose.
This has included promoting efforts surrounding the
primary care pharmacist and primary care pharmacy
concepts set out in the Ministry of Health, Labour andWelfare’s “Vision for Patient-Centered Pharmacies.” At thesame time, we worked to promote the training of specialist
pharmacists and the role of healthcare support pharmacies
in order to meet patients’ advanced pharmaceuticalmanagement needs. As of the end of the fiscal year underreview, the number of accredited healthcare support
pharmacies came to 89, with healthcare support
pharmacies belonging to Sogo Medical group accounting
for around 10% of the nationwide total. Our work to further
the healthcare support pharmacies concept also included
health consultation events held on pharmacy premises andthe distribution of health support leaflets.
The number of pharmacies reached 687, reflecting 18
new openings in the period under review (including 6 as aresult of mergers and acquisitions).
In addition to our efforts detailed above regarding
primary care pharmacists and primary care pharmacies,
which have been centered on existing pharmacies, oursales have been boosted all year since our acquisition of
the Miyonodai Pharmacy Group (of 91 pharmacies) in
December 2016. As a result, net sales at the pharmacy
business totaled ¥109,918 million (a year-on-year increaseof 14.5%) with an operating income of ¥7,139 million (a17.6% increase).

Net sales totaled ¥964 million (a year-on-year increase of
2.1%) with an operating loss of ¥22 million (improved froman operating loss of ¥29 million in the previous fiscal year).

96,40595,966
674

687

576

52

SOGO MEDICAL CO., LTD.

17/3

18/3

Stock Information

2016/3

Corporate Information

109,918

Financial Section

Net sales (¥ million)

FY2018 will be the second year of our Action 2020
medium-term management plan. Based on the plan’s
theme of the realization of a Japanese healthcare businessmodel, we will continue in our efforts surrounding
healthcare mall development, management support for
hospitals, and the creation of high-value pharmacies.
Likewise, with a view to attaining our Vision 2028, we willkeep up our efforts at the supplementation andstrengthening of the functions of existing businesses andthe expansion of business fields into medical peripheralbusinesses while proceeding with the formation of
platforms for regional healthcare networks.
As to the outlook for FY2018, although the negative
effects from the April 2018 revisions of dispensing fees anddrug prices suggest a drop in revenues at pharmacy
operations, expectations are for higher revenues at alldivisions of the medical practice support business. This,and the performance prospects for Bunkyo Corporation,
newly added to the Group by acquisition of the entity’s
entire share capital on April 26, 2018, will cover thedecrease in the pharmacy business division. Projections forthe fiscal year ending March 2019 are for net sales of¥144,928 million (a year-on-year increase of 7.0%).
Income projections reflect the negative effects of thedispensing fee and drug price revisions on pharmacy
operations, which could not be neutralized, calling for
operating income of ¥5,762 million (a year-on-year
decrease of 19.8%), with ordinary income of ¥5,800 million(a decrease of 19.8%), and ¥3,405 million (a decrease of
19.8%) in profit attributable to owners of the parent
company.
Dated April 1, 2018, the Company instituted a share split
at the ratio of 2 shares for 1 share of common stock.
Consolidated net income per share was calculated
assuming that the share split was instituted at the start ofthe previous fiscal year.
Furthermore, the board of directors at its meeting on
March 22, 2018, resolved to initiate full-scale preparations
for the transition to a holding company structure scheduled
to be implemented on October 1, 2018.
Going forward, in order to attain at an early stage thegoals of our Vision 2028 and in order to enhance theenterprise value of the Company and achieve sustained
growth, it will be necessary to develop and expand ourexisting operations. Furthermore, via active deployment ofmerger and acquisition, as well as enhancement of our

Corporate Governance

Number ofpharmacies

alliances, we must enlarge our overall business scale while
creating new businesses. For the realization of theseprospects, the Company has judged it appropriate totransition to a holding company structure. Additionally, we
believe that a holding company structure, which separates
management supervisory functions from businessexecutive functions, is appropriate also from theperspective of strengthening corporate governance.

Action Reports

Number of Pharmacies / Pharmacy Sales

Forecast for the Fiscal Year Ending March 31, 2019

President’s Message

Pharmacies

Annual Report 2018

53

Company Profile

Management’s Discussion and Analysis

AssetsLiabilities

Cash Flows from Investing Activities
Cash used in investing activities was ¥2,963 million. Main
factors were expenditures of ¥1,875 million for the purchaseof own-use assets and ¥745 million for the purchase ofproperty for lease.

Cash Flows from Financing Activities

It has been a fundamental policy of the Company to
disburse stable and sustained dividend payments toshareholders, through efforts to enhance the Company’s
capability to acquire revenues via effective management
and strengthened business performance while taking into
account the Company’s corporate condition.
The Action 2020 medium-term management plan, which
went into effect in April 2017, states a policy of maintaining
the minimum dividend payout ratio at 20%. Based on thispolicy, the next annual dividend payment is expected to be¥27.5 per share (interim and yearend dividends of ¥13.75).
In addition, in gratitude for the support of ourshareholders, and to enhance the attractiveness of ourshares and increase the number of medium- to long-term
shareholders, we are introducing special shareholder
incentives.

Interest-Bearing Debt / Net Debt-to-Equity Ratio

Trends in Dividends

Cash used in financing activities was ¥3,871 million. Main
factors comprised ¥3,000 million in income from long-termloans payable, ¥4,614 million in expenditure for the
repayment of long-term loans payable, and ¥1,266 million in
expenditure for the repayment of installment payable.

Trends in Cash Flows
Operating cash flow
Free cash flow(¥ million)

Investment cash flow

10,931

Interest-bearing debt (¥ million)

Net debt-to-equity ratio (times)

24,590

10,63023,529

7,666

7,004

Dividends (¥)

Dividend payout ratio (%)

Corporate Information

Net assets totaled ¥36,526 million reflecting an increase of¥3,645 million year-on-year. Main factors comprised a ¥785
million decrease caused by the payment of dividends and a¥4,243 million increase due to the recognition of profit
attributable to owners of the parent. As a result, the capital
adequacy ratio increased 2.8 points to 40.4% from 37.6% at
the end of the previous fiscal year.

Cash provided by operating activities increased by ¥10,630
million. The major cash increases were ¥7,105 million fromincome before taxes, ¥3,971 million from adjustment for
depreciation and amortization, and ¥1,243 million fromgoodwill amortization. The major cash decrease was¥2,778 million from income taxes paid.

In accordance with the goals of our medium-term
management plan, we maintain an ongoing focus on
healthcare mall development, hospital management
support, and creation of high-value pharmacies. We plan tocontinue moving in this direction and anticipate thatsuitable funds will be needed to achieve these goals in theyears to come.
Capital for the facility leasing of medical institutions andthe opening of 18 new pharmacies (including 6 pharmacies
from M&A transactions) in the fiscal year ended March 31,2018 was provided by our retained earnings as well as
financial institution loans and leasing.
To make “good medical practice” a reality, Sogo Medical
must not only target the stable management of medical
institutions; we must also achieve stable management of
our own operations. Holding to the basic principle ofexpanding shareholders’ equity through the accumulationof income, we also give thought to the appropriate level ofdebt leveraging.
While making steady progress in line with our growthstrategies, we must at the same time shore up our financialbase. We recognize that in the future, we must step up ourefforts to create a balanced capital structure.

Financial Section

Net Assets

Cash Flows from Operating Activities

Returns to Shareholders

Corporate GovernanceTotal liabilities at the end of the period under review was¥53,221 million reflecting a year-on-year decrease of ¥657
million. Total current liabilities increased ¥369 million to¥33,598 million. Total noncurrent liabilities fell ¥1,026 million
to ¥19,623 million. This was mainly due to a ¥1,340 million
decline in long-term loans payable. Interest-bearing debt(including lease obligations and installment purchaseaccounts payable) fell ¥1,060 million to ¥23,529 million
year-on-year. The net debt-to-equity ratio (interest-bearing
debt, less cash and deposits divided by shareholders’equity) decreased 0.17 points compared with the end of theprevious fiscal year to 0.25 times.

As of March 31, 2018, cash and cash equivalents totaled¥14,450 million, a 35.6% increase of ¥3,795 million. The
primary factors are described below.

Issues on the Financial Front

Action Reports

Total assets at the end of the period under review totaled¥89,748 million reflecting a year-on-year increase of ¥2,988
million. Total current assets rose ¥3,300 million to ¥48,299
million. This was mainly due to a ¥3,707 million rise in cash
and deposits. Total noncurrent assets decreased ¥311
million to ¥41,448 million mainly due to a ¥584 million
reduction in goodwill.

Cash Flow

President’s Message

3. Financial Strategies

2. Financial Position

60

50
45

18,447
29.1
997

0.41

0.42

0.25

19.8

21.2

(2,963)(4,981)

Stock Information

2,022(9,933)
2016/3

17/3

18/3

Note: Free cash flow = cash flows from operating activities+ cash flows from investing54

SOGO MEDICAL CO., LTD.

2016/3

17/3

18/3

2016/3

17/3

18/3

Note: On April 1, 2018, we carried out a 2-for-1 split of common stock,and the dividend amount per share given for years prior to
March 31, 2018 are the actual dividend amounts before thestock split was performed.

Annual Report 201855

Company Profile

Risk Information

Business risks related to the operational performance
reported in this annual report that have a possibility ofmaterially affecting investor decisions are listed below.
Points regarding future events are based on judgments
made as of June 22, 2018.

1. M&A and Other Investments

A. Segregation of drug prescription and dispensation
as regards pharmacies

B. Pharmacy dispensing regulations

Dispensing sales comprise revenue from prescription drugs
and dispensing technical fees. Revenue from prescription
drugs is based on official prices called the Drug Price
Standards decided under the Health Insurance Act, while
revenue from dispensing technical fees is also based on fees
decided under the same act. Changes in drug prices anddispensing fees as a result of official revisions could have aneffect on the performance of pharmacies.

56

SOGO MEDICAL CO., LTD.

B. Responding to technological advances

F. Recruitment of pharmacists and the pharmacy
opening plan

If consumption tax is increased but not reflected in patients’
TV rental fees or absorbed through the cutting of costs, it
could have an effect on the performance of the rental
division.

Under the Pharmaceutical and Medical Device Act, a fixed
number of pharmacists are required at pharmacies, andunder the Pharmacists Act, dispensing duties must be
performed by pharmacists. Our Group presently hasenough pharmacists at all its pharmacies to meet thecriteria of the Pharmaceutical and Medical Device Act. Our
company also has a pharmacist recruitment plan based on
its new pharmacy opening plan and by implementing
recruitment activities and supplementing the main period ofhiring in recruitment season with initiatives throughout theyear, our Group expects to recruit enough pharmacists
such that there will be no obstacles to its pharmacy
opening plan. However, if it proves impossible to recruit
enough pharmacists or if our Group’s pharmacy opening
plan is delayed and recruitment nonetheless goes ahead,so that for a time there are more pharmacists than areneeded, there could be an effect on the performance ofpharmacies.

5. DtoD Promotion
The shift to digital-only terrestrial broadcasting in July 2011is now complete, but if it became necessary to respond toa similar advance in technology, while there would be thepossibility of exploiting new business opportunities such as
through product development, the obsolescence ofexisting equipment and subsequent investment could havean effect on the performance of the rental division.

C. Consumption tax

4. Leasing / Installment
A. Changes in interest rates
Ultralow interest rate policies in the leasing/installment
business environment have led to increasingly fierce
competition with other companies over lease fees.
Leasing/installment contracts and profit margins areaffected by changes in interest rates.

The DtoD system supports practice succession, healthcare
cooperation, and doctors transferring practice. The system
helps to solve problems by comprehensively providing
assistance to doctors wishing to start or change practice,doctors in practice seeking successors, and medical
institutions looking for excellent doctors and healthcare
partners. Revenues from the DtoD system come not only
directly in such forms as introduction fees as part of doctortransfer support and consulting fees for doctors starting
new practices, but also indirectly through related businessexpansion that increases productivity and profitability.
As a fundamental strategy, Sogo Medical plans to further
promote and strengthen the DtoD system and expand its
business. However, if DtoD business expansion does not
go according to plan, it could have an effect on our
performance.

6. Personal Information Protection
The Group handles personal information as defined in theProtection of Personal Information Act in all of its various
businesses. In 2006, our Group acquired PrivacyMark
certification and we are working to prevent personal
information leaks. However, in the event that personal
information was leaked, loss of public trust, financial losses
from lawsuits, or other losses could affect our
performance.

Annual Report 2018

Stock Information

C. Drug price and dispensing fee revisions

Under the Consumption Tax Act, dispensing sales are notsubject to consumption tax, but pharmaceuticals purchasedby our Group are taxable. Consequently, consumption
tax paid by our Group on purchases is recorded asconsumption tax on the statement of income as part ofdispensing cost of sales. When consumption tax was
introduced and later increased, the increase was taken into
account in drug price revisions and the company was alsoable to have it taken into account when negotiating with our
suppliers. However, if future rises in consumption tax are notreflected in drug prices or our suppliers’ prices, there could
be an effect on the performance of pharmacies.

Corporate Information

To perform dispensing duties within our Group, it isnecessary to receive permission to open a new pharmacy
and be designated as a health insurance pharmacy by theprefectural or city governor, as well as receive other kinds ofdesignation as necessary. In the unlikely event that a
pharmacy was forced to suspend business or was closed
down as the result of a legal infraction or some otherreason, this could have an effect on the performance ofpharmacies.

Sogo Medical operates a system whereby patients pay touse TVs and other items that are placed in medical
institutions based on rental contracts. Net sales from rental
transactions (revenue from rental fees) vary based on thenumber of TVs and the rental fee. Presently, there is a
downward trend in the number of beds, which is having aknock-on effect on the number of TVs in medical
institutions. Revenue from rental fees is affected by the
number of beds, their occupancy rates and the number ofhours patients spend watching TV.

To increase the efficiency of funds collection, Sogo Medicalsells part of the property from the contracts it acquires
during the fiscal year and records it on the statement ofincome as product sales. These sales transactions refer tosales to another leasing company of the equipment fromthe lease contracts or installment contracts signed withcustomers. We collect receivables from customers and paythat money to the leasing company. We profit from thedifference between the purchasing price from the supplierand the selling price to the leasing company. If sales
increase, unearned lease contract and installment
receivables decrease and revenue from lease fees andinstallment sales also decrease.

Financial Section

In order to increase the quality of healthcare, the Japanese
government is pursuing policies encouraging theseparation of prescribing and dispensing functions so that
medical institutions focus on medical activities such as
medical treatment and pharmacies provide drug history
management, patient compliance instructions, and otherservices. However, if the degree of separation reduces in
the future, this could have an effect on new pharmacy
openings and the overall performance of pharmacies.

E. Consumption tax

A. Rental transactions

B. Product sales

Corporate Governance

2. Pharmacies

Our Group treats the prevention of dispensing errors as animportant issue, therefore we increase the skill andknowledge of pharmacists through training and implement
multiple checks and a dispensing error prevention system.
Our Group has also taken out liability insurance forpharmacists in all its pharmacies as a precautionary
measure. However, in the case of a major dispensing error
leading to loss of public trust, financial losses from lawsuits,
or other losses, there could be an effect on theperformance of pharmacies.

3. Rental

Action Reports

The Group invests through mergers and acquisitions, etc.
as part of business expansion efforts, and theaccompanying goodwill is recorded. It is therefore possiblethat new goodwill could be generated that increases
amortization costs. Or, if the firm invested in does notachieve initial performance targets and is not likely toachieve them into the future, it becomes necessary to book
an impairment loss, which can affect the performance of
the Group.

D. Dispensing errors

President’s Message

Business Risks

57

Company Profile

Consolidated Financial Statements(¥ million)

2016(Apr. 1, 2015–
Mar. 31, 2016)2017(Apr. 1, 2016–
Mar. 31, 2017)

2018

2016

(Apr. 1, 2017–
March 31, 2018)

Assets2018(Apr. 1, 2017–
March 31, 2018)

Cash and deposits
Notes and accounts receivable-trade

18,59020,25820,037

610

415

490

4,046

4,607

4,429

Current liabilities
6,376
19,617

10,83021,395

14,538Notes and accounts payable-trade20,536

Short-term loans payable

1,874

1,821

2,934

Current portion of long-term loans payable

Lease receivables and investment assets

1,403

911

1,098

Lease obligations

267

256

275

Inventories

6,583

6,557

5,787

Accrued expenses

2,972

2,629

2,842

789

811

814

Income taxes payable

1,572

1,762

1,837

2,566

2,710

2,643

182

187

251

(20)

(38)

(53)

Other

2,994

3,112

3,433

39,18944,99948,299Total current liabilities

31,23733,22833,5989,204

15,171

13,831

714

920

731

Deferred tax assets
Other
Allowance for doubtful accounts
Total current assets
Noncurrent assets

Deferred profit on installment sales

Noncurrent liabilities

Property, plant and equipment

Long-term loans payable
5,177

4,823

5,483

Lease obligations

Buildings and structures, net

11,716

13,312

12,898Long-term accounts payable-installment purchase

1,938

2,160

2,754

Land

4,109

4,720

4,707

Other

1,880

2,397

2,306

Other, net

2,539

2,216

2,351

Total noncurrent liabilities

13,737

20,65019,623

Total property, plant and equipment

23,54225,07225,44044,97553,87953,221Intangible assets

Total liabilities
Net assets

5,833

9,703

9,119

Other

1,201

1,537

1,383

Capital stock

3,513

3,513

3,513

Total intangible assets

7,034

11,241

10,502

Capital surplus

5,566

5,566

5,566

Retained earnings

20,94424,012

27,470

(920)

(920)

(920)

29,10432,17235,629Investments and other assets

Shareholders’ equity

1,134

1,327

1,465

Deferred tax assets

507

445

361

3,231

3,673

3,716

(19)

(0)

(39)

Valuation difference on available-for-sale securities

338

432

611

5,504

Total accumulated other comprehensive income

338

432

611

203

275

285

29,64632,88036,526

74,62186,76089,748

Other
Allowance for doubtful accounts
Total investments and other assets
Total noncurrent assets
Total assets

4,853

5,446

Treasury stock
Total shareholders’ equity
Accumulated other comprehensive income

35,431

41,76041,448Non-controlling shareholders

74,62186,76089,748

Total net assets
Total liabilities and net assets

SOGO MEDICAL CO., LTD.

Annual Report 2018

Stock Information

Investment securities

Corporate Information

Goodwill

Financial Section

Property for lease, net

Corporate GovernanceAccounts receivable-installment sales

Action Reports(Apr. 1, 2016–
Mar. 31, 2017)

Liabilities

Current assets

58

2017

(Apr. 1, 2015–
Mar. 31, 2016)

President’s Message

Consolidated Balance Sheet

59

Company Profile

Consolidated Financial Statements(¥ million)

2016

Net sales

2018

2016

(Apr. 1, 2015–
Mar. 31, 2016)(Apr. 1, 2016–
Mar. 31, 2017)(Apr. 1, 2017–
March 31, 2018)

120,776

122,216

135,431

Net income
Other comprehensive income(¥ million)

2017

2018

(Apr. 1, 2015–
Mar. 31, 2016)(Apr. 1, 2016–
Mar. 31, 2017)(Apr. 1, 2017–
March 31, 2018)

2,323

3,851

4,253

115,077

Gross profit

17,59818,454

20,354

Valuation difference on available-for-sale securities

(136)

94

178

Selling, general and administrative expenses

11,511

12,206

13,164

Total other comprehensive income

(136)

94

178

Operating income

6,087

6,248

7,189

2,186

3,945

4,432

Non-operating income

287

447

409

Dividends income

22

25

26

2,181

3,873

4,421

Rent income

31

21

22

4

71

10

Insurance cancellation refunds

36

21

−

Gain on sales of investment securities

−

168

−

196

209

360

Non-operating expenses

178

254

370

Interest expenses

75

81

103

Loss on valuation of investments securities

−

−

37

Provision of allowance for doubtful accounts

−

−

51

Loss on lease cancellation

−

35

−

103

137

Ordinary income

6,196

Extraordinary loss
Impairment loss

Comprehensive income
Comprehensive income attributable toComprehensive income attributable to owners of the parent
Comprehensive income attributable to non-controlling shareholders

Consolidated Statements of Change in Net Assets(¥ million)
Accumulated othercomprehensive income

Shareholders’ equity
CapitalsurplusRetainedearnings

Treasury
stock

Total
shareholders’equityValuation difference
on available-forsale securities

Non-controllingshareholders

Net
assetsBalance on March 31, 2015

3,513

4,136

19,255(1,044)25,861

475

184

26,521Dividends from surplus

−

−

(629)

−

(629)

−

−

(629)

178

Net income attributable toowners of the parent

−

−

2,318

−

2,318

−

−

2,318

6,440

7,228

Purchase of treasury stock

−

−

−

(708)

(708)

−

−

(708)

1,371

48

123

Disposition of treasury stock

−

1,429

−

832

2,262

−

−

2,262

1,014

48

123

Loss on sales of stocks of subsidiaries and affiliates

87

−

−

Net changes of items otherthan shareholders’ equity

−

−

−

−

−

(136)

18

(117)

Loss on valuation of investment securities

270

−

−

Balance on March 31, 2016

3,513

5,566

20,944(920)

29,104338

203

29,646

4,824

6,391

7,105

Dividends from surplus

−

−

(710)

−

(710)

−

−

(710)

Net income attributable toowners of the parent

−

−

3,779

−

3,779

−

−

3,779

Purchase of treasury stock

−

−

−

−

−

−

−

−

Other

Income before income taxes
Income taxes-current

2,569

2,452

2,859

Income taxes-deferred

(68)

87

(7)

Total income taxes

2,501

2,540

2,851

Net income

2,323

3,851

4,253

Net changes of items otherthan shareholders’ equity

−

−

−

−

−

94

71

166

4

71

10

Balance on March 31, 2017

3,513

5,566

24,012(920)

32,172432

275

32,880

2,318

3,779

4,243

Dividends from surplus

−

−

(785)

−

(785)

−

−

(785)

Net income attributable toowners of the parent

−

−

4,243

−

4,243

−

−

4,243

Purchase of treasury stock

−

−

−

(0)

(0)

−

−

(0)

Net changes of items otherthan shareholders’ equity

−

−

−

−

−

178

10

189

Balance on March 31, 2018

3,513

5,566

27,470(920)

35,629611

285

36,526

Stock Information

Corporate Information

Capitalstock

Financial Section

103,761

Corporate Governance

103,178

Action Reports

Cost of sales

Other

Annual Report 201861

Net income attributable to non-controlling shareholders
Net income attributable to owners of the parent

60

2017

Consolidated Statements of Comprehensive Income

President’s Message

Consolidated Statements of Income

SOGO MEDICAL CO., LTD.

Change in the classification method of business segments
From this fiscal year, and in accordance with our medium-term management plan, we devised a segment classification strategy to implement segment activities founded on rapid
decision-making, which involves a reconsideration of the organizational and management systems centered on the segments. Alongside this, we have reevaluated our segmentclassification method, changing the previous reporting segments from Higashinihon, Nishinihon and Kyushu, to Medical Practice Support, Pharmacies, and Others.
We have applied these new terms to segments for comparisons with previous years.

(¥ million)

2016(Apr. 1, 2015–
Mar. 31, 2016)(224)
10,933(4,446)(324)(1,924)
(710)
−
−
3,301
4,299
6,356
10,65571
3,000(4,614)(276)(1,266)(785)−(0)(3,871)
3,795
10,655
14,450Intersegment sales
Total
Segment profit
Segment assets
Other items
Depreciation expenses
Goodwill amortization
Increase in total property, plant, andequipment and total intangible assets

Reconciliations*1

Consolidated
amounts*2

Pharmacies

OthersTotal

25,30595,966944

122,216−

122,216

6,278

370

−

6,649

(6,649)−31,584986
25,80996,337
6,069
49,864

944
(52)
1,932

128,865
7,003
77,606(6,649)
(754)
9,153

122,216
6,248
86,760

2,391
77

1,186
909

71
0

3,649
987

252
−

3,902
987

3,711

6,712

62

10,486433

10,920Notes:
1. Reconciliations were as follows:(1) Reconciliation for reportable segment loss (–¥754 million) included elimination of intersegment sales (¥114 million) and overall corporate expenses (–¥868 million).
The overall corporate expenses were mainly classified as general and administrative expenses and were not allocated to reportable segments.
(2) Reconciliation for reportable segment assets (¥9,153 million) included elimination investment against equity (–¥17,598 million) and overall corporate assets(¥26,752 million). The overall corporate assets were mainly classified as parent company deposits and were not allocated to reportable segments.
(3) The ¥433 million adjustment amount to the increase in property, plant, and equipment and intangible assets reflects mainly internal system purchases at head office.
2. Reportable segment profits were reconsolidated with the operating income of the consolidated income statement.

2018
Apr. 1, 2017 – Mar. 31, 2018

Sales
Unaffiliated sales
Intersegment sales
Total
Segment profit
Segment assets
Other items
Depreciation expenses
Goodwill amortization
Increase in total property, plant, andequipment and total intangible assets

Reporting Segments

Reconciliations*1

Consolidated
amounts*2

Medical practice support

Pharmacies

OthersTotal

24,548109,918964

135,431−

135,431

7,144

411

12

7,567

(7,567)−

31,693884
27,080110,329
7,139
48,809

976
(22)
1,818

142,999
8,001
77,709(7,567)(811)
12,039135,4317,189
89,748

2,313
77

1,305
1,166

71
0

3,690
1,243

281
−

3,971
1,243

2,739

2,295

57

5,091

110

5,201

Notes:
1. Reconciliations were as follows:(1) Reconciliation for reportable segment loss (–¥811 million) included elimination of intersegment sales (¥37 million) and overall corporate expenses (–¥849 million).
The overall corporate expenses were mainly classified as general and administrative expenses and were not allocated to reportable segments.
(2) Reconciliation for reportable segment assets (¥12,039 million) included elimination investment against equity (–¥18,195 million) and overall corporate assets (¥30,234 million). The
overall corporate assets were mainly classified as parent company deposits and were not allocated to reportable segments.
(3) The ¥110 million adjustment amount to the increase in property, plant, and equipment and intangible assets reflects mainly internal system purchases at head office.
2. Reportable segment profits were reconsolidated with the operating income of the consolidated income statement.

Annual Report 2018

Stock Information(1,875)
−
(745)
−
(485)
142
(2,963)

Sales
Unaffiliated sales

Reporting Segments
Medical practice support

Corporate Information(3,152)−(264)−(6,440)(76)(9,933)Apr. 1, 2016 – Mar. 31, 2017

Financial Section

SOGO MEDICAL CO., LTD.

7,105
3,971
1,243
123
(28)
118
1,016
(1,048)
(187)
846
(400)
310
421
13,49228(113)(2,778)
10,6302017

Corporate Governance

62

6,391
3,902
987
48
(27)
105
1,127
57
491
751
(670)
(193)
258
13,23027(103)(2,222)
10,9312018(Apr. 1, 2017–
March 31, 2018)(¥ million)

Action Reports

Net cash provided by (used in) operating activities
4,824
Income before income taxes
3,836
Depreciation and amortization
1,021
Goodwill amortization
1,014
Impairment loss
(23)
Interest and dividends income
112
Capital cost and interest expenses(993)
Decrease (increase) in notes and accounts receivable-trade(75)
Decrease (increase) in accounts receivable-installment sales
298
Net decrease (increase) in lease receivables and investment assets
1,253
Decrease (increase) in inventories(1,436)
Increase (decrease) in notes and accounts payable-trade(798)
Increase (decrease) in other assets/liabilities
620
Other, net
9,652
Subtotal
23
Interest and dividends income received(111)
Interest expenses paid
(2,559)
Income taxes paid
7,004
Net cash provided by (used in) operating activities
Net cash provided by (used in) investing activities(4,233)Purchase of own-used assets
172
Proceeds from sales of own-used assets(876)
Purchase of property for lease(11)
Purchase of investment securities
Purchase of investments in subsidiaries resulting in change in scope of consolidation (147)
115
Other, net(4,981)
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
64
Net increase (decrease) in short-term loans payable
6,485
Proceeds from long-term loans payable(3,001)
Repayment of long-term loans payable(751)
Repayments of lease obligations(2,092)
Repayments of installment payables(629)
Cash dividends paid
(708)
Purchase of treasury stock
−
Other
(635)
Net cash provided by (used in) financing activities
1,387
Net increase (decrease) in cash and cash equivalents
4,968
Cash and cash equivalents at beginning of period
6,356
Cash and cash equivalents at end of period

2017(Apr. 1, 2016–
Mar. 31, 2017)

Segment Information

President’s Message

Consolidated Statements of Cash Flows

Company Profile

Consolidated Financial Statements

63

Corporate Outline

Shareholder Composition
Major Shareholders (Top 10 Largest Shareholders)

Head Office

Fukuoka Tenjin Center Bldg. 16F, 2-14-8 Tenjin, Chuo-ku, Fukuoka

Total Number of Issued Shares 15,340,156 shares

Name of Shareholder

FoundedJune 12, 1978

Number of Shareholders

6,828 shareholders

Capital¥3,513 million

Number of Unit Shareholders

6,005 shareholders

ListedFirst Section, Tokyo Stock Exchange. (Code 4775)

Banking
Relationships

The Bank of Fukuoka, Ltd., Mizuho Bank, Ltd., The 77 Bank, Ltd., The Kita-Nippon Bank, Ltd., The Bank of Yokohama, Ltd., The Gunma
Bank, Ltd., The Joyo Bank, Ltd., The Chiba Bank, Ltd., The Chiba Kogyo Bank, Ltd., The Musashino Bank, Ltd., The Shizuoka Bank, Ltd.,The Hachijuni Bank, Ltd., The First Bank of Toyama, Ltd., The Bank of Kyoto, Ltd., The Juroku Bank, Ltd., The Senshu Ikeda Bank, Ltd.,The Kiyo Bank, Ltd., The Chugoku Bank, Ltd., The Hiroshima Bank, Ltd., The San-in Godo Bank, Ltd., The Shikoku Bank, Ltd., The
Kitakyushu Bank, Ltd., The Nishi-Nippon City Bank, Ltd., The Miyazaki Bank, Ltd., The Miyazaki Taiyo Bank, Ltd., The Oita Bank, Ltd., The
Bank of Saga, Ltd., The Eighteenth Bank, Ltd., The Higo Bank, Ltd., The Chikuho Bank, Ltd., The Kagoshima Bank, Ltd., Sumitomo Mitsui
Banking Corp., Sumitomo Mitsui Trust Bank, Limited, MUFG Bank, Ltd., Development Bank of Japan Inc., The Norinchukin Bank, etc.

Group
Companies (32)Somtech Co., Ltd. (design and construction of hospitals, clinics and assisted living facilities)
Sogo Medipro Co., Ltd. (paramedical staff introduction and dispatch)
Sogo Real Estate Co., Ltd. (lease and management business for medical facilities)
S.M.E Co., Ltd. (wholesale of pharmaceuticals)
Sogo Care Network Co., Ltd. (residential-type nursing homes)
Sun Villa Co., Ltd. (nursing home with care for seniors)
Hokendohjinsha Inc. (healthcare information service)
GM Co., Ltd. (interior finishing of hospitals and clinics)
Bunkyo Co., Ltd. (hospital stores and restaurants)

MITSUI & CO., LTD.
THE SFP VALUE REALIZATION MASTER FUND LIMITED(Standing proxy: Citibank, N.A., Tokyo Branch)
Tokyo Century Corporation
The Bank of Fukuoka, Ltd.
Japan Trustee Services Bank, Ltd. (trust account)
Hirosada Oyamada
The Kitakyushu Bank, Ltd.
The Master Trust Bank of Japan, Ltd. (trust account)
THE CHASE MANHATTAN BANK, N.A. LONDON SPECIALOMNIBUS SECS LENDING ACCOUNT(Standing proxy: Mizuho Bank, Ltd.)
Employees Shareholders’ Association of Sogo Medical

Dispensing
Pharmacies

Bases
Employees

Sogo Medical Pharmacy Chubu Co., Ltd., Aoba Pharmacy Co., Ltd., Maeda & Co., Ltd., Yataya Pharmacy Co., Ltd., Taikodo yakkyoku
honten Co., Ltd., Beauty Drug Saito Co., Ltd., Pharma Systems Co., Ltd., Shokando Co., Ltd., Miyonodai Pharmacy Co., Ltd., Motoki
Pharmacy Co., Ltd., Ai Dispensing pharmacy Co., Ltd., Kanamecho Pharmacy Co., Ltd., Tsukasa Dispensing pharmacy Co., Ltd., Koyu
Co. Ltd., Mitsuhira Co. Ltd., Flower Dispense Co., Ltd., Green Pharmacy Co., Ltd., Koyama Co., Ltd., Kitano Dispensing Pharmacy Co.,
Ltd., KSmedicine Dispensing Co., Ltd., Trust Co., Ltd., Triadplus Co., Ltd., K&K Pharmacy Co., Ltd.

Oct. 1987

Started real estate agency and practice inheritance businesses.

Nov. 1987

Started the TV rental business for patients.

May 1988

Established the first Sogo Pharmacy.

Jun. 2010

Acquired all outstanding shares of Aoba Pharmacy Co.,
Ltd., a pharmacy.

Jan. 2011

Started wholesale marketing of medical and pharmaceuticalproducts.

Oct. 2011

Acquired all outstanding shares of Maeda Pharmacy Co.,
Ltd., a pharmacy.
Started long-term care service businesses, such as
residential homes for the elderly.

Treasury Stock
372 thousand shares (2.4%)

Started the “Green Members” (now “Succeed Members”)
member system targeted to medical personnel.

Jun. 2012

Oct. 1994

Started the planning, design, and construction of medical
facilities.

Acquired all outstanding shares of Sun Villa Co., Ltd., afee-based residential home for the elderly.

2,500

Nov. 2012

Aug. 2000

Listed on Second Section of Tokyo Stock Exchange.

Acquired all outstanding shares of Yataya Pharmacy Co.,
Ltd., a pharmacy.

2,000

Apr. 2001

Acquired all outstanding shares of Orix Media Supply Co., Ltd.,a company that carried out TV rentals for hospitals, etc.
Began operation of stores within hospitals.

Aug. 2013

Acquired all outstanding shares of pharmacies Taikodo
Yakkyoku Honten Co., Ltd. and TM Yakkyoku Co., Ltd.

1,500

Oct. 2014

Absorption-type merger with pharmacies Taikodo
YakkyokuHonten Co., Ltd. and TM Yakkyoku Co., Ltd.

1,000

Mar. 2015

Acquired 61.6% of shares of Hokendohjinsha Inc., ahealthcare information service company.

Jun. 2015

Acquired all outstanding shares of Shokando Co., Ltd.

Aug. 2015

Transferred all shares of Sogo Media Supply Co., Ltd.

Jan. 2002

Acquired all outstanding shares of the pharmacies Hello
Medical Co., Ltd., Hello Network Co., Ltd. and Hase Dispensing
Pharmacy Co., Ltd.

Dec. 2003

Started temporary introduction and placement service of othermedical staff.

Feb. 2016

Acquired 75% of shares of GM Co., Ltd., a company that
performs interior construction at medical facilities.

Apr. 2005

Started hospital operational management contracting.

Dec. 2016

Acquired shares of Miyonodai Pharmacy Group.

Aug. 2007

Formed business alliance with Mitsui and Co., Ltd.

Apr. 2018

Sep. 2007

Conducted allocation to third party to Mitsui & Co., Ltd.

Acquired all outstanding shares of Bunkyo Corporation, acompany with in-hospital shops and convenience stores,
etc.

262

1.75%

220

1.47%

Number of
SharesSecurities Firms
61 thousand shares(0.4%)

15,340Financial Institutions
33 shareholders (0.5%)

Other Companies
63 shareholders (0.9%)

Securities Firms
24 shareholders(0.4%)

Number of
Shareholders

Foreign Companies, etc.
141 shareholders (2.1%)

6,828

thousandsharesIndividuals and Others
6,567 shareholders (96.2%)

Other Companies
4,626 thousand shares (30.2%)

3,000

Stock Information

Started the DtoD system.

4.82%
4.10%
3.52%
3.03%
2.69%
1.95%

3,500

Changed name to Sogo Medical Co., Ltd.

Listed on First Section of Tokyo Stock Exchange.

6.22%

722
615
528
453
404
293

Share Price (yen)Oct. 1989

Oct. 2001

932

Share Price and Trading Volume

Nov. 1989

SOGO MEDICAL CO., LTD.

Financial Institutions
3,305 thousand shares(21.6%)

Foreign Companies, etc.
3,362 thousand shares (21.9%)

Nov. 2011

Sep. 2001

25.51%

Corporate Information

Established Sogo Medical Leasing Co., Ltd. with acapitalization of ¥20 million, for business purposes of leasing
medical equipment and consulting for medical institutions.

3,819

Financial Section

64

Jun. 1978

Shareholding
Ratio

Breakdown of Shares by Type of Shareholder

Individuals
and Others
3,611 thousand shares(23.5%)

Corporate Timeline(thousands of shares)(Notes)
1. Treasury stock (372 thousand shares) is not listed under major shareholders above.
2. Ratios of controlling shares are calculated excluding treasury stock.
3. On April 1, 2018, we carried out a 2-for-1 split of common stock.
For the shareholder composition as of March 31, 2018, listed above, share figures listed are those prior to the stock split.

852 (3 offices, 23 branches, 4 sales offices, 1 satellite office, 691 pharmacies, 80 in-hospital shops and convenience stores, 46 in-hospital
restaurants and cafes, 3 residential-type nursing homes, 1 nursing home with care for seniors)
7,138 (4,612 full-time workers, 2,526 part-time workers)

Number of Shares Held

Corporate Governance

Sogo Medical Co., Ltd.

Action Reports

Company Name

President’s Message

Stock Information (As of March 31, 2018)

Company Profile

Corporate Information (As of June 1, 2018)

Trading Volume (thousand shares)
3,000
2,000
1,000
0

4

5

6

7

8 9 10 11 12
2015

1

2

3

4

5

6 7 8
2016

9 10 11 12

1

2

3

4

5

6 7 8
2017

9 10 11 12

1

2

3 4
2018

5

(On April 1, 2018, we carried out a 2-for-1 split of common stock. Figures on share price and trading volume prior to and including the fiscal year ended
March 31, 2018 were calculated assuming that the stock split had been performed.)For further inquiries, please contact: Sogo Medical Co., Ltd., Public and Investor Relations Division
TEL: +81-92-713-9181 E-mail: ir@sogo-medical.co.jp http://www.sogo-medical.co.jp/english/

Annual Report 201865

Fukuoka Tenjin Center Bldg. 16F, 2-14-8 Tenjin, Chuo-ku, Fukuoka
www.sogo-medical.co.jp/english

Printed in Japan